Corn stocks to rise if ethanol tax credit cut: FAPRI

WASHINGTON Mon Mar 7, 2011 11:14pm IST

WASHINGTON (Reuters) - Stockpiles of U.S. corn would begin to rebuild if Congress allows tax credits for ethanol expire at the end of the year, a key group of economists at the University of Missouri said on Monday.

The university's Food and Agricultural Policy Research Institute, or FAPRI, forecast corn stocks at the end of the 2011/12 marketing year of 1.247 billion bushels, 44 percent above the 865 million bushels forecast by the U.S. Agriculture Department, which assumed the subsidy will continue.

The ethanol subsidy will be a matter of intense political debate for Congress this year as it looks for ways to cut government spending.

"In contrast to past FAPRI-MU baselines, we assume that biofuel tax and tariff provisions will expire on schedule and not be extended," the group said.

"Allowing these policies to expire results in reduced biofuel production and use," FAPRI said.

One congressional watchdog has said ending the tax credit would save as much as $5.7 billion per year.

But a separate law mandates 12.6 billion gallons of ethanol production - a mandate unlikely to change.

The USDA has forecast a record 5 billion bushels of corn will be used to make ethanol in the marketing year opening on Sept 1, but FAPRI forecast a dip in demand from ethanol makers to 4.635 billion bushels, down from its estimate of 4.902 billion bushels in the current year.

FAPRI forecast a 2011 corn crop of 13.63 billion bushels from 91 million acres of plantings, slightly less than the 13.73 billion bushels from 92 mln acres forecast by the USDA last month.

"With stocks limited, 2011 corn yields will be critical to world markets," FAPRI said, noting last year's unexpected drop in corn yields was a "major reason" for high world grain prices.

The university think-tank also forecast corn ending stocks for the current marketing year of 745 million bushels, above the USDA's most recent forecast of 675 million bushels.

For soybeans, FAPRI forecast a crop of 3.35 billion bushels, very close to USDA's forecast of 3.345 billion bushels.

Strong world demand for crops likely will keep farm income high, pushing farmers to double-crop more acres and cut land planted to hay, the FAPRI report said.

FAPRI said total plantings for the 13 largest crops could reach 258.17 million acres, up 8 million acres, and approaching land use seen in 2008.

Wheat production was forecast at 2.22 billion bushels, 7 percent above USDA's forecast of 2.08 billion bushels

Upland cotton projection was pegged at 18.99 million bales, up from 17.82 million bales last year, and 2011/12 ending stocks were forecast at 3.29 million bales, up 75 percent from 1.87 million bales in the current market year.

"Projected corn and cotton stocks rebuild in 2011/12 and 2012/13 but remain low enough that prices continue to be very sensitive to supply or demand shocks," FAPRI said.

(Graphics by Emily Stephenson; editing by Jim Marshall and Sofina Mirza-Reid)

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