October, 2006… Rising corn prices make ethanol production an attractive option
Wisconsin corn farmers are enjoying prices near 10-year highs for bushels of their kernels, partially due to a higher demand from the ethanol fuel industry and world food stores. But as research groups worry about the possibility of fuel need outpacing food production, most local agriculture experts said farmers are enjoying the higher prices and placing their faith in the free enterprise system.
The U.S. Department of Agriculture is forecasting the second-best corn harvest ever, but it also expects ethanol demands to cut deeply into the nation’s corn surplus, possibly reducing it by half. Prices are cautiously expected to stay solid in 2007.
Don Charapata, a district sales manager for Dairyland Seed in West Bend, said farmers were looking to grow more corn next year because it would be more profitable. At recent price and crop yield averages, corn could offer at least $100 per acre more profit than soybeans.
Patrick Hayes, a senior market advisor for the agriculture commodity group Stewart Peterson in West Bend, said he expected prices to adjust themselves as farmers plant more corn to take advantage of higher prices. Hayes said farmers are expected to switch four to 10 million acres away from soybeans and other crops to corn to meet the rising demand.
Another way to meet demand is to improve crop yields through technology, which farmers say is always a priority. A report released last week by the international consortium Council for Agriculture Science and Technology found since 2001, U.S. ethanol production has exploded, increasing from 1.7 billion gallons to 4.8 billion gallons in June 2006.
The report called increasing corn yields above current trends the most important factor in maintaining a balance between rising ethanol production, global food deficits, corn prices and expansion of reserved farmland.
“Good prices have a way of stimulating more production. We’ve had higher prices and higher prices stimulate technological growth and development,” Hayes said.
Advances in farming technology, Hayes said, have pushed yield upward — to about 150 bushels per acre in Wisconsin — and reduced the need to increase acreage. Dairyland Seed is releasing 27 new types of hybrid corn in 2007, some designed to maximize yields or starch content for ethanol.
“My father would’ve been thrilled to grow 100 bushels per acre, and that’s now what we need to just break even,” said Bob Oleson, executive director of the Wisconsin Corn Growers’ Association.
“We’re at a 150 bushels average here in Wisconsin. We saw a few 300 bushels per acre yields last year and we’re going to see some more this year,” said Oleson, who was driving a combine to harvest corn when contacted by the Daily News.
Oleson said the switch to more corn acreage would not be dramatic because farmers still needed regular crop rotations to keep their soil healthy. Also, corn must be stored to reduce its moisture content before it is sold, and farms built to split output between corn and soybeans would not have the extra silage facilities to switch acres to corn.
As a market advisor for Stewart Peterson, Matt Strelow helps farmers secure good prices for their crop. He said normally prices were the best in spring when planting problems might arise, rather than in the fall when the harvest bolsters surpluses. Ethanol plants are most profitable when they can process millions of bushels of corn without interruption.
“More and more plants are coming online seemingly everyday. There are more planned, but those that are up and running are turning such a good profit that they’re expanding,” Strelow said.
The demand has led to a more volatile market which features “fast activity and a lot of trade volume.”
Alan Linnebur, a farm business management professor at the University of Wisconsin—Washington County, said the demand from ethanol plants had doubtlessly added to price volatility.
“Sometimes we are seeing with strong bullish markets that a lot of hype gets in there. Any farmer who thinks the price of corn is going to stay above $3 per bushel forever is probably misguided,” Linnebur said.
But demand for corn to export and for feed is also fueling the high prices. Oleson said Australia, which uses wheat as livestock feed, has been buying more corn to survive recent devastating droughts. Hayes said as of November the U.S. was 38 percent ahead of projections for exportation of corn.
“Whenever you have developing countries they start to eat better and consume more beef and pork, they’re importing more feed,” Hayes said. “Any kind of stress on world feed supplies affects corn greatly.”
Matt Mathison, a vice president for the Wisconsin Milk Marketing Board, said dairy farmers are definitely paying more for feed, but because they sell milk in a regulated market they cannot recover those costs from the consumer. Paradoxically, he hears more complaints about the cost of petroleum-based products like fertilizer and gasoline for fuel.
Ken Rosenow, who oversees southeastern Wisconsin for the state’s Corn Promotion Board, said corn producers have tried to stir up interest in ethanol for 20 years. They hoped pushing the idea for decades would one day garner greater demand for their surplus crops.
Only now, with concerns about global warming and dependence on foreign oil mounting, is ethanol receiving full attention.
“All the ethanol market is doing is just giving the farmer another marketing opp for his corn,” Rosenow said. “Finally, after more than 20 years of promoting this, we’re finally seeing the fruits of our labors.”