Saturday, October 28, 2006

Adapting to ethanol, Part 1...

Richard Brock has an interesting article about the surprising action of the corn basis in areas where ethanol plants were going to be the answer to wide basis. Money quote:
Ethanol plants can't risk running out of corn. As a result, these plants bid for corn 3-6 months in advance and sometimes even further out. Many plants cover 90% or more of their corn needs at least this much in advance. Consequently, the cash bids and basis bids for corn to be delivered in the future are much better than what we have experienced in recent history.
Trying to force the market to your ends means trying to force other people who are looking out for their own interests and can figure stuff out too. We may discover more unexpected consequences as ethanol plant operators work to maximize their profits, not grower profits.

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