Higher ethanol mandate may not buoy U.S. corn prices

By Sam Nelson - Analysis

CHICAGO (Reuters) - The Obama administration's call this week for an increase in the amount of ethanol to be used in gasoline in the United States is a positive sign for corn growers but it probably will not boost seedings or corn prices this year.

"It's pretty good news for corn growers and will at least keep farmers committed to corn," said Gavin Maguire, analyst for Ehedger.

However, for corn prices and plantings to get a big boost, it would take better exports and increased corn feeding and so far that isn't happening as ethanol is only one part of the equation, Maguire said.

U.S. Agriculture Secretary Tom Vilsack said on Monday that an increase in the blend rate of ethanol, which in the U.S. is corn-based, in gasoline to 12 or 13 percent from the current 10 percent could be accomplished quickly and give a needed boost to the future of the industry.

And House Speaker Nancy Pelosi said on Monday that she supported a higher ethanol-to-gasoline blend rate as a way to reduce reliance on petroleum imports.

"It seems to me we should be able to do that," Pelosi told reporters after speaking to the National Farmers Union convention.

Asked about raising the ethanol cap, Pelosi said, "I hope so" and pointed to the goal of more domestic fuel production.

An ethanol trade group, Growth Energy, has asked the Environmental Protection Agency (EPA) for permission to boost the ethanol blend cap to 15 percent.

Vilsack said he would love to see a 15 percent cap.

CORN AREA LIKELY TO DECLINE RATHER THAN INCREASE

The U.S. Department of Agriculture (USDA) said at its annual outlook conference in February that farmers would plant 86.0 million acres (34.8 million hectares) of corn this year, about the same as last year.

But that much corn area is overly optimistic, according to analysts.

High-priced fertilizer combined with national crop insurance rates recently set at $8.80 a bushel for soybeans and $4.04 for corn will likely mean fewer corn acres and more soybeans than a year ago.

"The producer has a safety net but it favors beans versus corn, bottom line," said Don Roose, analyst and president of brokerage U.S. Commodities in West Des Moines, Iowa.

Roose expects soybean acres to be up from the 75.7 million seeded last spring and less corn acreage than the 86 million planted in 2008, especially if the price of fertilizer -- key to producing big corn yields -- does not come down soon.