Too expensive to burn?

Cargill announced yesterday that it is canceling plans to build an ethanol plant outside Topeka, Kansas. The basic reason is that corn is now to expensive to use a feed stock for ethanol production, in Cargill's estimation.

Corn closed at $5.25 per bushel on the Chicago Board of Trade -- and I can remember a year ago lamb feeders in the midwest saying that they couldn't afford to feed lambs corn that cost $3.50 a bushel.

So whither corn? Is the irrational exuberance out of the marketplace yet? How will the federal government meet the conflicting goals of increased ethanol use, improved land conservation practices, and cheap food? Is this just a ploy by Cargill to try to put some downward pressure on the price of corn? Cargill is, essentially, in the business of adding value to corn by making it into various products from pork to ethanol to high fructose corn syrup -- if its basic raw material is too expensive and it can dial back perceived demand just a bit, perhaps production won't trail off, but prices will?

The timing of the announcement makes one wonder about this. Nearly all the major corn production for 2008 is pretty well locked in. Seed and fertilizer has been ordered and in some cases paid for. Land has been leased, removed from CRP plans, or otherwise committed to production. And Cargill looks at its Topeka plans and says, "Eh? Maybe not." It also mentioned that it has not made any decisions about three other plants that it has on the drawing boards.

For a company like Cargill, used to controlling absolutely everything in a "vertically integrated" supply and production system, it must be maddening to not be able to precisely control the cost of corn, when so much of their business model depends on it. But perhaps, just perhaps, it has figured out a way.