In Different Fields
19 December 2008 In my time covering US agriculture, there has never been a feeling like the one that the US industry has right now. A nervous, excited energy hangs in the air, permeating the fields and facilities, and putting an extra bounce in everyone’s step. There are plenty of questions, acres of uncertainty, but overall an inescapable sense that something big is happening.
As several contributors to this issue have pointed out, biofuels — ethanol, in particular — is having an effect as big or bigger than most analysts would dare to predict just a year or two ago.
Production facilities are emerging across the country as quickly as the millions of new corn acres that are being grown to supply them. And prices have been alluring; so much so, that many farmers who entered into multiyear contracts a few months ago thinking that corn prices couldn’t possibly go higher are kicking themselves today. And what makes the situation even more tantalizing is the fact that it has a chance to be sustainable — in the past, price spikes often related to carryover stocks or poor yields in the prior season or a major world market. In other words, conditions that were often corrected within a season.
What a surging ethanol industry offers is steady demand. While prices aren’t going to stay as high as they are now, and there are certain to be hiccups as the US biofuels industry picks itself up off the ground, there also is reason to believe that for producers, the additional demand is now a fact, rather than speculation. Case in point: one of the top corn-growing states in the US, Iowa, is seeing ethanol production capacity expand to such an extent that the state is predicted to have a net corn deficit within 18 months. For those familiar with the US industry, such a fact seems almost unthinkable; it’s like saying the ocean will need to begin importing fish.
But it’s happening. While we may not know yet how large the effect will be, it is abundantly clear that a change is occurring, and for much of the US industry, it’s a welcome change.
Of course, the optimism is not shared by all US growers. I recently returned from the Southern Cotton Ginners Association’s Farm and Gin Show in Memphis, Tennessee, and (like everywhere in the US) biofuels were the topic of the day. Except, unlike in my neck of the woods on the cusp of the US Corn Belt, farmers in the South face a different reality: cotton prices are down due to a large amount of carryover and will need at least a year of lower production before those stocks are drained and prices rebound. In the long-term, the scenario isn’t so bleak. Cotton demand remains on the rise globally, and once prices recover, the industry will be back on an even keel.
In the short-term, however, the questions loom enormous. Cotton farmers, where the conditions are right, are all looking hard at dedicating land to corn and soybeans this season. However, the issues that arise from these shifts are cause for concern. The South has several challenges to face with a major switch to corn and soy, with two of the most pressing being matters of logistics: namely, shipping and storing. Shortages of storage space and limited transportation options will drive up the prices of each, and, as Richard Brock of Brock Associates pointed out in his presentation at the show, an added transportation wrinkle might depend on rainfall — if the water level of the rivers is not high enough, barges will not be able to haul full loads, adding more time and expense to the process. The plain truth is that while some of the farmers may be able to grow additional grain, it’s anyone’s guess what they’ll do with it all afterwards.
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