USA Today
05-03-07
Farmers stampede to corn
By Barbara Hagenbaugh
AQUILLA, Texas — Farmers in some of the most unlikely places are planting
corn this year as demand for the grain to make ethanol has led to skyrocketing
prices, sparking a corn rush throughout the USA.
U.S. farmers are expected to plant the largest corn crop since World War II this
year, switching acreage from soybeans, cotton, rice and other crops and planting
on land that has been sitting idle for years. The move is in response to soaring
demand for ethanol, commonly produced from corn in the USA.
Ethanol, which is blended with gasoline to produce fuel for vehicles, is growing in
popularity as gasoline prices climb and demand for alternatives to oil-based fuel
sources grows.
It's happening in more than the traditional corn states in the Midwest. Corn
acreage is expected to be up in every state but Massachusetts. Record corn
acreage is expected in California, Minnesota, Idaho, North Dakota and Illinois in
2007, according to the U.S. Department of Agriculture.
"You hate to miss out on an opportunity," says fourth-generation farmer Ronnie
Gerik of Aquilla, an area known more for cotton and cattle than for ears of corn.
In the midst of planting season, Gerik, 53, has increased the corn acreage on his
farm 40%, mainly by cutting cotton plantings. He planted corn on about half the
3,300 acres he farms, up from about a quarter in 2006.
It's a big risk. Corn can't stand as much heat as cotton and needs a lot more
water. Gerik says he needs just a few really good soakings during the season to
grow cotton. Corn needs about an inch a week.
"Cotton's a tougher plant; it can take more," Gerik says, sipping water in his office
in a large, red barn. Like other farmers in the Blackland region of central Texas,
Gerik doesn't have irrigation. He watches the Weather Channel "religiously" and
logs rainfall and other weather patterns on a week-by-week calendar on the wall,
a constant reminder of how much of farming is "completely out of your hands," he
says.
There are other concerns. If growing conditions are good this year, there could
be so much corn that prices could fall considerably, making it harder for farmers
to turn a profit. Plus, if oil prices were to drop substantially, the ethanol boom
could fizzle, leading to a drop in corn prices. For many farmers, growing corn
costs more than the crops they're replacing, such as soybeans, increasing
overhead. They need prices to stay high.
"It is a bit of a gamble," says Chad Hart, agricultural economist at the Center
for Agricultural and Rural Development at Iowa State University in Ames.
But, "our demand for gasoline is continuing to grow," he says. "And as long as
corn-based ethanol is a viable alternative or can help feed into that market, that
demand is likely to stay. That means there will be demand for that corn to make
that fuel."
Says Larry Salathe, senior economist at the USDA: "I don't think we're going to
be concerned about too much corn. I think the risks are on the other side."
Less soybeans and cotton
Before planting season began, U.S. farmers planned to plant 90.5 million acres
of corn in 2007, up 15% from last year and the largest acreage since 1944,
according to a USDA survey. If those plans are realized, the amount of corn
acreage in the USA this summer will be greater than the entire area of Germany.
The increase is mainly coming at the expense of soybeans and cotton. When
surveyed in early March, farmers said they planned to reduce their soybean
acreage by 11%. That would be the smallest soybean planting since 1996.
Cotton plantings are expected to be down 20% from a year ago. That would be
the smallest cotton acreage since 1989.
Farmers are responding to a surge in the price of corn. Corn prices on futures
markets peaked at $4.35 a bushel in mid-February, nearly twice the price seen a
year earlier. Even though prices have come down since the USDA announced
farmers' planting intentions in late March, the prices were still up 50% from a year
ago at $3.58 a bushel at the end of April.
Although some farmers are lamenting the recent price drop, "Two years ago, if
you would have said $3 corn, people would have celebrated," says Michael
Swanson, agricultural economist at Wells Fargo in Minneapolis.
Higher corn prices have led to higher prices for other grains, such as soybeans,
because greater corn production is at the expense of soybean supplies. For
consumers, the increase in corn prices could lead to higher costs for such items
as meat, bread and soft drinks flavored with corn syrup.
But some economists, including those at the American Farm Bureau Federation,
say the pass-through will be limited, noting grain prices represent a small fraction
of retail food costs and are often absorbed by businesses.
The price surge has come as more corn is being used to meet a booming
demand for ethanol, which received a boost in recent years by the phase-out of
another fuel additive because of health concerns, as well as government
mandates for alternative fuel.
More than 11.6 million barrels of ethanol were produced in the USA in January,
up 30% from a year earlier and nearly three times the amount produced five
years ago, the Energy Department says. There were 110 ethanol refineries
operating in the USA in January, up from 95 a year earlier and nearly double the
number operating in 2001, according to the Renewable Fuels Association, an
industry trade group.
Demand for corn to produce ethanol is expected to increase. There are currently
79 ethanol refineries being built in the USA, according to RFA. That can only help
farmers around the nation, says Richard Asplund, research director at Melvin &
Company in Chicago.
"This is the best thing that has happened to the American farmer since the farm
subsidies came during the Depression," Asplund says. "It's just such a huge
source of new demand that wasn't there five or 10 years ago. And it's not going
to stop. … It's a worldwide phenomenon; it's not going to back off."
An expensive crop to grow
But growing corn still carries risks other than the significant weather-related ones.
Farmers switching from soybeans to corn, common in the Midwest, are facing
extra costs. Corn requires more nitrogen-based fertilizer than is needed for
soybean plants, which pull nitrogen from the air and deposit it into the soil. Costs
for fertilizer, which is derived from natural gas, have jumped in recent years.
Natural gas is generally the most costly component in the production of nitrogen
fertilizers.
And growing corn leads to about three times more volume of grain that needs to
be harvested and transported than soybeans, says Tom Jackson, agricultural
economist at consulting firm Global Insight.
Among other issues, that means more storage space is needed, which not all
farmers have. And greater volume requires more passes on the field, which
means more diesel fuel, which has risen significantly in price.
"It's not necessarily obvious that some of these guys are going to make a ton of
money," he says. "All the things that you use more of to grow corn happen to
cost a lot more now. … It's not a slam-dunk."
Says Illinois farmer Terry Taylor, 53: "There is not an automatic windfall in this
year's crop."
He says he's seen costs for some raw materials jump as much as 20% in little
more than a month as demand has risen for fertilizers, pesticides and other
items. He had planned to increase corn plantings on his farm in Geff, Ill., by
about 10%. But too much rain has delayed planting — he didn't get a corn seed
in the ground until Tuesday. Normally by now, he'd have half his fields planted.
Now, he'll be lucky if his corn acreage doesn't fall from a year ago.
About 45 miles away, Ron Gray, 56, of Claremont, Ill., had planned to increase
his corn acreage by 45%. Like Taylor, he has faced big delays. "Those acres are
weather-dependent," he says.
It's still unclear if farmers are planting as much corn as they said they would in
March. Poor weather at the start of the Midwest planting season caused delays.
Corn takes longer to grow than soybeans, so some farmers may be switching.
There have been anecdotal reports of shortages of newer, more advanced seed
corn, which could have led farmers to switch crops. The USDA will report on
actual plantings in June.
Ethanol's new opportunities
Back in central Texas, Ronnie Gerik is cautious, but somewhat optimistic, about
his decision to plant more corn this year. Although much of his crops died in the
field last year in a severe drought, so far this year, there has been a healthy
amount of rain.
"It doesn't look like a dry year to me," Gerik says, pointing out a few shallow
puddles on the dirt road that crosses through his farm. A few weeks ago, "it
rained so hard, it was running uphill."
But Gerik knows in a lifetime of farming that a lot could go wrong between now
and harvest this summer. Not only have costs for fertilizer and diesel fuel
jumped, but wild hogs in the area have been digging corn out of the ground, and
in previous years, have eaten ears off the stalk once the corn matured.
With such uncertainty, Gerik encouraged his three sons to pursue careers other
than farming when they graduated from Texas A&M, Gerik's alma mater.
"I said, 'There's an easier way to make a living, boys,' " he says.
But the oldest, Ronnie Joe, farms with Gerik. The other two, Zachary and Jacob,
have gotten into the crop insurance business and are farming part time.
Gerik hopes ethanol opens new opportunities for his sons and other young Texas
farmers. The market for U.S. cotton has declined in recent years as production in
other countries rises and the U.S. textile industry shrinks. It's possible that
ethanol will be a new way for farmers in the area to make a living.
"We've been surviving on a whole lot less some way or another," he says. As for
this year, "We just hope we can make a crop."