Shifting Corn Basis Patterns

The ethanol industry continues to reshape Iowa’s agricultural economy. By the end of this summer, 28 ethanol plants will have spread across the state, capable of producing over 1.9 billion gallons of ethanol per year. Twenty more plants are being constructed in Iowa, with plans for even more. The tremendous growth of the ethanol industry has put pressure on Iowa corn producers to keep up with this growing demand for corn. Producers have responded by planting 14.3 million acres of corn, the second-largest corn area in Iowa on record. (In 1981, Iowa had 14.4 million acres of corn.) The pull on corn from the ethanol industry, combined with the push from Iowa and U.S. corn producers, has resulted in some dramatic price movements for corn over the past year. As Figure 1 shows, since September of last year, the corn market has experienced a strong run-up in prices and an increase in price variability. The growth in ethanol’s demand for corn drove prices up through the harvest period last year and maintained corn prices at around $4 per bushel over the winter. The acreage response hit the market in two waves, around the USDA acreage reports released in March and June of this year. The prospects for increased corn production have reduced corn futures prices to below $3.30 per bushel