Sioux Falls Argus Leader, SD
01-28-07
Ethanol shifts farm aid
Energy plans might force new balance of conservation and subsidies
By BEN SHOUSE
bshouse@argusleader.com
REDFIELD - Jim Klebsch's family has been farming around here for six
generations, but he has seen more change in the past decade than his forbears
did in 100 years.
Technology is everywhere on his operation: transgenic crops, a tractor that
drives itself and a video system for the barns that his 4-year-old calls "cow TV."
And just this month, Klebsch welcomed calves born from artificially implanted
embryos.
"Ten years ago, who would have thought that we'd be growing somebody else's
calves?" Klebsch said. "Fertilizer has changed, crops have all changed,
machinery's changed."
A couple miles from Klebsch's place is a sign of perhaps the most significant
transformation in farm country: the Redfield Energy ethanol plant, set to open in
March.
Congress is considering how to respond to all the change with a new farm bill,
the massive legislation that sets ag subsidy levels. Lawmakers face a welter of
proposals, from permanent disaster aid to more conservation dollars to payment
limits on the largest farmers.
But most important for South Dakota might be a proposal to elevate support for
ethanol, especially cellulosic ethanol made from grass and crop residues. That
could reshape farms, rural economies and landscapes across the Great Plains.
Rep. Collin Peterson, D-Minn., chairman of the House Agriculture Committee, is
a key proponent. At the South Dakota Corn Growers convention this month, he
said support for cellulosic ethanol could push today's farm programs into the
background.
In some places, it could do the job of the two largest pieces of the farm program:
commodity payments, which pay based on crop acreages or prices, and
conservation payments, which promote land retirement and soil and water
quality.
"You have people that are still trying to have a fight between commodities and
conservation, and I just think that's old news. Where I see us going is a point
where we can get fuel, we can get conservation, and we can get wildlife off the
same acres.
"And we can get the marketplace to pay for it and not the government," he said.
One of his ideas is to expand the Conservation Reserve Program, which pays
farmers to set aside fragile cropland and plant grass. A modified version could
"add another 5 million acres to grow these biomass materials on a significant
scale, with regular farmers."
Producers could fit grass into their rotation or plant it on marginal land. Or they
could switch to grass entirely, and maybe even use the land for guided pheasant
hunting.
Peterson said he hopes to send a bill to the president by September.
Rep. Stephanie Herseth, D-S.D., said she supports the concept, though further
study is needed to set the number of acres.
Prominent Republicans share the Democrats' optimism. In his State of the Union
address on Tuesday, President Bush called for the U.S. to produce 35 billion
gallons of corn ethanol, cellulosic ethanol and other alternative fuels by 2017 almost a sevenfold increase.
Corn leads the way
Corn-based ethanol already has altered farm subsidies.
After a wave of new plant construction, the Chicago price of Number 2 Yellow
Corn has gone from around $2 a bushel a year ago to more than $4 this month.
If the price of corn stays up, it will eliminate subsidies from programs that support
prices, which account for roughly half of the commodity subsidies in the state.
That would change one of the central realities of production agriculture.
"From $1.80 to $2 and a quarter is all we've gotten for years," Klebsch said. "And
that's not a money-making price."
So until recently, farmers had to rely on government payments. The rising cost of
fertilizer, fuel and machinery has forced many to get big or get out.
Klebsch's family has expanded its operation, and he is hopeful that his two sons
will stay on the farm. Other farmers have not been so lucky, and the resulting
decline in South Dakota's rural population is all too familiar.
Economist Mike Duffy at Iowa State University said machinery and other
technology largely drive that trend - by making it possible to farm large acreages
with less labor. But he said farm payments "have done nothing to discourage it."
Beyond farm subsidies
Some are trying to combat the trend.
Sen. Tom Harkin, D-Iowa, and others have proposed capping the payments an
individual farmer can receive in an attempt to divert more money to small- and
medium-size farmers. But there are ways to get around payment caps, and they
might do little to reduce farm consolidation.
Harkin also has proposed expanding conservation programs, such as the
Conservation Security Program, which pays farmers for practices that protect
and enhance soil and water quality. That could help out farms of all sizes, since
the payments are tied to stewardship rather than production.
"It's going to reward people for the conservation practices they're doing, rather
than planting every acre fencerow to fencerow," said Traci Bruckner of the
Center for Rural Affairs in Lyons, Neb.
Sen. John Thune, R-S.D., has proposed a permanent disaster program, which
focuses payments on farmers with losses from drought or other disasters. Such
payments are now subject to political whims, critics say.
But cellulosic ethanol could accomplish many of those goals: supporting farms of
all sizes and promoting less intensive, more wildlife-friendly production. Until
then, Rep. Peterson said startup funds could come from revoking tax breaks for
domestic oil production - a proposal passed Jan. 18 by the House that now
awaits Senate action.
And new cellulosic ethanol plants might create jobs in the countryside, though
nobody knows exactly what those plants will look like.
"This is the biggest opportunity I've ever seen in rural America in my lifetime, and
I think we can revolutionize rural America if we get this right," Peterson said.
Downside of high prices
George Schade agrees that ethanol has transformed South Dakota agriculture.
He grows corn - among other things - on his farm near Zell, just west of Redfield,
and is invested in an ethanol plant.
"I think it's changed the whole equation. I'm not going to say it's going to stay up
at the $3.50 level, but I don't think you're going to see sub-$2 corn any more,"
Schade said.
But he also says prices are only one side of the equation. Schade is intimately
familiar with the other side of that equation, particularly the cost of farm
equipment.
That's because he's had two tractor fires in the past three years.
The first fire, in 2004, totaled his John Deere, hitting his insurer for hundreds of
thousands of dollars, he said. The second was on a 113-degree day last year,
but he managed to douse it.
"I don't want to see $5 corn," he said. "Last time we had $5 corn, machinery went
up, and believe me, the John Deere man doesn't lower his prices once they go
up."
He also worries that high corn prices will hurt pheasant hunting, by promoting
more corn and less grass. And high corn prices hurt cattle producers.
"If the ethanol plants put the cattle guys out of business, where are you going
with the distiller's grain?" Schade said, referring to the ethanol byproduct that is
fed to cattle.
"You need the full circle."
His favorite idea for the farm bill is a permanent disaster program.
"Thune has a good idea, because he's more disaster-oriented, and that's more
important to us out here."
Schade does think that growing grass for cellulosic ethanol could catch on,
however.
"If the money is there, they're going to gravitate to it," he said. "It's what puts the
green in your pocket, that's what you're going to adapt to."
But Jim Iverson, a rancher and former head of the Hand County Farm Service
Agency office, said farmers always will get the most profit from growing a feed
crop. Cellulosic ethanol, whether it's from corn or grass, "has to be a byproduct to
be economically feasible."
High-quality grass will fetch a higher price as feed than as fuel, he said.
"I don't think they can pay $50 a ton for grass or $60 a ton for grass. Now, they
might be able to pay $30 a ton or $40 a ton for wheat straw or corn stalks, but for
grass, no."
On the other hand, Peterson says, cellulosic ethanol could help meat producers
by reducing corn prices.
"I've told the livestock guys that one of the best ways for them to alleviate their
concerns is to get behind us on the cellulosic, because that will take some of the
pressure off."
Klebsch, the Redfield farmer and rancher, says even if grass is profitable, South
Dakota might not be the place to grow it.
"I think the cellulosic part is going to be tough here," he said. "The first problem
we have is we don't have enough rain."
So no-till farmers in Minnesota and Iowa might be the best source of cellulose:
"They have a lot of residue. They sometimes don't know what to do with the
residue."
Laird Larson, a grain farmer from Clark, says he could see grass as a crop only
for marginal land.
"I think maybe that's where we'll see it, rather than pulling away from the other
crops. We're farmers. We've got the equipment, we're going to keep growing," he
said.
That much, at least, doesn't change.
Reach Ben Shouse at 331-2318.