Much of the optimism in corn prices continues to be driven by oil. High oil prices and gasoline prices projected to reach $5 per gallon this summer have historically driven the demand for lower-cost energy, which pushes demand for corn-based ethanol.

More than a third of the U.S. corn crop, projected at 92.3 million acres for 2011, is expected to go to ethanol production. Likewise, demand for corn and for distillers grain, a by-product of ethanol production, remains high.

The driving question for farmers is: “How long will corn prices stay high.” Or, will corn prices stay high enough to offset the skyrocketing cost of production?

Demand for corn globally, for ethanol, livestock feed and human consumption; combined with poor harvest in many areas of the world have pushed corn stocks to near record lows.

Corn stocks in all positions at the end of 2010 stood at 6.52 billion bushels, below what traders expected.

To keep carry out stocks at current levels, corn producers will need to average 160 bushels per year, if they plant 92.2 million acres.

The slight drop likely reflects stronger than anticipated demand from livestock. Ethanol production through the first three months of the year has remained relatively steady at 900,000 barrels per day, or 13.78 billion gallons annualized. 

Though the Southeast has toyed with the concept of ethanol production plants, the Midwest has seen these facilities blossom in the mid-2000s, fizzle in 2007-2008, and resurface again the past couple of years.

Troy Dummler, an area economist in southwest Kansas, says there is no doubt the combination of ethanol and high gasoline prices has been instrumental in pushing corn prices up and keeping them up going into the 2011 season.

“Corn acres were up last year, and I expect more acreage this year. How much of an impact ethanol demands have on increasing corn acreage is open for debate, but when you are using 35-40 percent of the total crop for ethanol, clearly there is a influence on price,” he says.

“If ethanol wasn’t a factor, and we produced the same amount of corn we produced the past 3-4 years, prices would be at historic levels, or around $2-$2.50 a bushel,” Dummler adds.

The rate of increase in ethanol production has slowed significantly in response to high corn and grain prices over the past 2-3 years. “I don’t really see much expansion, if any, in ethanol production, because of grain prices.