Iowa Farmer Today
04-21-07
Be cautious despite economic boom
By Gene Lucht, Iowa Farmer Today
AMES -- While most experts are predicting great things for rural Iowa in light of
the economic energy being generated by ethanol, a few are offering words of
caution.
“There is no such thing as a stable commodities market,” says Robert Gramling,
director of the Center for Socioeconomic Research at the University of Louisiana
at Lafayette.
Gramling told experts gathered for a recent conference on “The Small Town in
the Bioeconomy” that Louisiana lived through the oil boom and bust times and it
was a wild roller-coaster ride.
The result, he says, was a huge influx of money in the 1970s and early 80s and a
big fall a few years later.
If Iowans want to be major players in the energy market, he says, they need to
prepare themselves for the inevitable downturns that have in the past been a part
of energy market cycles.
Others gathered for the conference were more upbeat, saying the present focus
on biofuels appears to be a fundamental shift in the energy market and while
there will be ups and downs it should be a net positive for farmers and other rural
residents.
“What we are talking about is taking everything petroleum can do . . . and
replacing it with a biobased material,” says Tom Johnson, an agricultural
economist and professor of public affairs at the University of Missouri.
In the long run that could transform the entire rural economy and the entire rural
social structure, he says.
And, economists say while there will be downturns the net effect should be good
for farmers.
Iowa State University Economist Bruce Babcock says corn-based ethanol
production is expected to double from five billion to ten billion gallons very quickly
and then should rise more slowly until it plateaus, at least in Iowa.
The USDA corn acreage projections for this year are for about 90.5 million acres
to be planted nationwide.
That figure should eventually rise to about 94 or 95 million acres.
Corn prices will shoot up to the and then eventually drop back down, but not
dramatically.
And, Babcock says in the short term, soybean acreage will drop.
But, the resulting higher soybean prices should eventually bring soybean
acreage back, at least part way.
The net effect over the next several years should actually be relatively high corn
and soybean prices, he says.
That should mean an increase in land values and rents of as much as 67
percent, benefiting landowners but potentially hurting beginning farmers.
Meanwhile, even high grain prices won’t mean a mass closing of ethanol plants.
The ethanol plants now in operation or under construction will likely make an
operating profit, Babcock says, but it won’t be nearly as much as ethanol
production plants have made during the last several years.
Other possible side-effects include increased need for grain storage, more tillage
equipment (because of more corn-on-corn acreage), more fertilizer demand,
more local infrastructure (roads and railroads) needs, less need for new grain
export facilities, lower CRP acreage because landowners will see higher profits
from renting out land for row crops.
There will likely also be some reduction in livestock numbers, because of
increased feed and land costs.
“Livestock will be marginally smaller,” Babcock says.
But, he adds that if farmers can find ways to co-locate livestock and ethanol
production they could benefit from the change.