Associated Press
05-05-07
'A shot in the arm' - U.S. corn industry cranking up for ethanol boom
JAN DENNIS
Associated Press
BLOOMINGTON, Ill. - From New York to California, and even parts of the Deep
South, more acres of corn are expected to be planted this year than at any time
since World War II as farmers rush to cash in on the surging demand for ethanol.
"It's the price. The price is telling you to go toward more corn," said Mike Olson,
who plans to bump corn by 15 percent on his 2,750-acre Illinois farm. He
harvested a 50-50 split of corn and soybeans last fall.
After hovering around $2 a bushel for a decade, corn prices have nearly doubled
in the last year, pumped to near records by more than 100 ethanol plants that
have sprouted as America seeks renewable alternatives to foreign oil. President
Bush is talking up alternative fuels and companies like Illinois-based Archer
Daniels Midland Co., the biggest ethanol producer in the world, are pouring
money into research and development.
On farms across the nation, the lure of more than $100 an acre from corn is too
good to pass up in an industry whose fortunes depend on fickle weather, global
politics and annual subsidies in the billions.
"I think the country and the leadership of the country have recognized that our
addiction to foreign oil is a national security risk that we can't stomach anymore,"
said Mike Baise, a policy expert with the Indiana Farm Bureau. "I believe that
we're going to shift to more bio-based energy in a big way."
Still, some experts warn that the price has nowhere to go but down if the market
is flooded, and not everyone has forgotten how a massive grain deal with the
Soviet Union in the early 1970s and the 1996 drought in China shot corn prices
to record highs - prices that later wilted.
Keith Blunier, who farms 400 acres in central Illinois, also wonders whether
ethanol demand could wane if oil prices drop or other fuel sources prove viable.
"I've been through the '70s and seen the ups and downs," said Blunier, who
plans to keep his usual split between corn and soybeans on his farm.
For now, the rush is on.
About 90.5 million acres of corn are expected to be planted this year, up 15
percent from 2006 and the most since 95.5 million acres were planted in 1944.
Of the 48 states that grow corn, only Massachusetts is expected to plant less this
year.
"I think it's an opportunity for a lot of farmers. It's one that probably only comes
along every 20 or 25 years," said Terry Francl, senior economist for the American
Farm Bureau Federation.
The five top corn-producing states - Iowa, Illinois, Nebraska, Minnesota and
Indiana - account for 5.1 million of the projected 12.2 million new acres of corn.
To make room, those states will sacrifice 4.3 million acres of soybeans.
The sharpest increases are expected in the land of cotton.
Arkansas, Louisiana and Mississippi this year are expected to boost corn
acreage by 133 percent to 195 percent. Combined, the three states are expected
to add 1.2 million acres of corn while trimming cotton production by more than a
million acres.
"We need a shot in the arm from somewhere and right now it isn't cotton," said
Billy Joe Ragland, whose main crop will be corn this year on his farm near
Bentonia, Miss. After drought and two rounds of hurricanes over the last three
years, he said, "we've got a chance to make a little money for a change."
The USDA estimates cotton acreage will drop 20 percent nationwide this year
and soybeans will drop 11 percent. Agriculture Secretary Mike Johanns has
downplayed any impact on food costs, saying the USDA anticipates typical 2
percent to 3 percent increases that can be pegged to "a dozen different factors."
Still, there are plenty of unknowns as ethanol commands a growing share of a
U.S. corn crop that also feeds cattle, hogs and poultry, and is a food additive that
goes into everything from breakfast cereals to candy and beer.
Farm officials say the livestock and poultry industries, which historically use
about half the nation's corn crop, will likely try different feeding options or selling
animals at lower weights before passing along higher prices to consumers.
"It's not going to happen overnight," said Dale Lattz, a farm management
specialist with the University of Illinois extension service. "It would take a year or
two for significant effects."
And some contend there will be enough corn for everyone if the planting forecast
bears out.
"I think the market got the acres it really wanted to satisfy this global demand,"
said Jim Bower, owner and president of Bower Trading Inc., a Lafayette, Ind.based commodities brokerage.
Whether the harvest meets everyone's needs will depend on the weather, and
some farmers may choose other crops depending on the planting season
forecasts. Analysts also say ethanol-driven demand coupled with the weather
uncertainties will make for a volatile corn market.
Many farmers and analysts say corn prices likely won't dip below $3 per bushel
this year due to ethanol demand that is expected to consume 3.2 billion bushels
of corn, up from 2.1 billion bushels last year.
The American Farm Bureau's Francl predicts prices will stay in the $3 to $5 per
bushel range for the next four to five years. Others suggest farmers will be able
to adapt if a market emerges for non-corn biofuels.
"If federal policy doesn't change and oil prices stay in the $50 to $65 range, this
isn't going to go away for a while," said Bruce Babcock, director of Iowa State
University's Center for Agricultural and Rural Development.
Steve Stevens plans about 1,200 acres of corn on a 4,500-acre farm in southeast
Arkansas, where cotton and rice have been staples since his father
homesteaded the land 70 years ago. Since then, only 100 acres of corn have
ever grown there, in a small field planted two years ago when pest problems
ruled out cotton.
"It's scary," Stevens said of his switch to corn. "We know cotton, we've done it for
a long time. We don't know corn."
Even some farmers familiar with corn aren't changing. Among them is Vance
Bauer, who will keep a 50-50 mix of corn and soybeans this year on his 1,800acre farm near Gowrie, Iowa.
"I'm very optimistic about where we're headed, but I don't know that I'd put myself
out on a limb," he said. "I don't want to put all my eggs in one basket."