The industry is trying to sort out both the short- and long-term ramifications. One can usually learn a lot by looking at history but history doesn't provide much insight into this issue. The last time corn price levels were this high was 1996, but it was a supply-driven market caused by the disappointing 1995 harvest.

That's not the case this time, as we've had three of the largest crops in history -- consecutively, no less. It's a demand-driven market and corn demand is expected to exceed production this year by a significant amount.

Fact is, the overall market structure has changed. With subsidized ethanol, it's difficult to create a scenario where corn will fall much below $3/bu. for quite some time, and the upside risk from that level is much greater than the downside risk.

Today's corn prices unquestionably are sending the signal to increase corn plantings. With corn growers looking conservatively at profits of $200/acre or more for corn, we can expect more acreage in corn than at any time in the last 60 years. What's more, the weather conditions look positive and oil prices are falling. That combination of factors will curtail demand, and feed demand will drop significantly as well, giving the industry an opportunity to rebuild carryover levels.

Source: Cow-Calf Weekly