Ethanol makers like Archer Danials Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: GPRE), and Green Plains Renewable Energy Inc. (NASDAQ: GPRE) are expected to experience lower prices for ethanol in the first part of this year as a result of falling demand for transportation fuel in the US. The relatively high cost of corn, combined with the lack of demand, suggests that ethanol makers will lose about $0.03/gallon on the corn-based product.
Morgan Stanley has forecast a drop of 50 million bushels of corn demand from ethanol makers. US inventories are expected to fall to around 800 million bushels by spring, which the bank’s forecasters see as having a positive effect on the price for the second half of the year.
Corn is currently selling for about $6.38/bushel, and Morgan Stanley sees an average price by year’s end of about $6.60/bushel, primarily on a further drop in inventories to around 625 million bushels. Weak harvests in South America should help prop up corn prices as summer approaches.
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