Cash crop or crash crop?

The lure of ethanol presents U.S. policymakers, farmers and consumers with a dilemma. It's clear that any meaningful strategy for reducing our dependence on foreign oil must involve the transportation sector. Efforts to develop hybrid, electric and hydrogen vehicles notwithstanding, the tendency to find liquid alternatives to gasoline are most appealing since they can most easily be adopted utilizing the existing infrastructure.

That leads inevitably to ethanol. Brazil is leading the way with its success in converting sugar cane into a viable alternative to gasoline. While there is a lot of excitement here in the United States about the prospects of using non-food plant material to produce ethanol, the real action -- for a variety of reasons -- is focusing on corn. We know how to grow it and government officials and farmers envision a new and expanding biofuels market for it as a way out of pulling a hefty portion of the heartland out of debt.

Therein lies the horns of the dilemma. Corn production exacts a huge toll on soils and consequently requires significant inputs of chemical fertilizers and pesticides -- especially when grown as a monoculture. The temptation to put marginal and conservation lands into production may be difficult to resist. Additionally, diverting the production of corn away from food to fuel will have widespread socioeconomic impacts, especially for those who depend on the crop as a dietary staple. (GW)

Farmers Head to Fields to Plant Corn, Lots of It

By Andrew Martin
New York Times
March 31, 2007

With demand for ethanol pushing corn prices to $4 a bushel or higher, it was not a surprise that farmers intended to plant a lot more corn this season.

What was surprising about the Agriculture Department report released yesterday was just how much they intended to plant — a staggering 90.5 million acres, the most since World War II and 15 percent more than last season.

But intentions do not always translate into reality. Many analysts were cautioning yesterday that it was too soon to assume there would be a bumper crop.

Some farmers may change their minds about planting corn, especially after corn futures dropped on news of the planting report, though prices remain strong. The analysts, however, were worried about the weather.

“Our climate scientists are predicting a challenging growing season,” said Daniel W. Basse, president of AgResource, an agricultural research and consulting firm.

But even if farmers do not end up reaping as much corn as predicted, this year’s crop promises to have broad implications throughout the agriculture, food and energy sectors.

The rush to plant corn would come at the cost of other crops, particularly soybeans and cotton. The Agriculture Department said that if farmers followed through with their stated intentions, soybean acreage would be down 11 percent and cotton, 20 percent.

“This year, we are planting wall-to-wall corn,” said Webb Bozeman, a farmer in Flora, Miss., who normally plants cotton, corn and soybeans. “Corn is profitable. Cotton is pretty much break-even at best.”

The drop in corn futures dragged other crops down with it yesterday. Corn futures for May fell 20 cents, to $3.74 a bushel, or 5 percent, the maximum allowed for a one-day decline. May soybean futures fell 17 cents, about 2 percent, but they had gained more than 30 percent over the last year on expectations that farmers would reduce acreage. Wheat futures for May were down 23 cents, or 5 percent.

Shares of meat producers jumped yesterday because the additional corn should reduce feed costs. Shares of Tyson Foods rose 45 cents, to $19.41. Shares of Smithfield Foods rose 82 cents, to $29.95.

Shares for ethanol producers were mixed. Archer Daniels Midland stock fell 6 cents, to $36.70, but Pacific Ethanol rose 6 cents, to $17.03.

David Driscoll, an analyst for Citigroup, said that while the corn crop was still dependent on weather, the report was a positive sign that there would be enough corn to meet both fuel and food needs and to replenish depleted corn inventories.

“The moral of the story is, if you dangle money in front of farmers, they take it,” Mr. Driscoll said.

With corn prices expected to weaken, at least temporarily, the report should ease concerns about increases in food costs, which had recently started to tick upward. Corn is primarily used to feed livestock, and some farmers have complained that ethanol is pushing feed corn prices too high.

“We still have some optimism that we will have enough corn,” said Joy Philippi, immediate past president of the National Pork Producers Council. “Everything is going to hit just perfect.

“It looks good today, but we’ll know more in June or July,” said Ms. Philippi, a Nebraska farmer who told a Congressional panel this month that hog farmers were worried that they would not have enough corn because of the demands by ethanol plants.

But the National Chicken Council said its optimism about the corn crop was clouded by decreased soybean acreage. Chicken feed typically includes 70 percent corn, 20 percent soybean meal and 10 percent minerals and other ingredients. As a result, feed costs have increased 40 percent since last summer because of rising corn prices.

Several analysts said they expected Brazilian farmers to plant more soybeans in the fall to make up the difference.

In the last several years, farmers and investors have been rushing to expand ethanol capacity, a trend that was accelerated by a 2005 energy bill that mandated 7.5 billion gallons of renewable fuels by 2012 and by refiners phasing out the use of the fuel additive methyl tert-butyl ether, or MTBE. Soaring gasoline prices have also encouraged ethanol production.

There are currently 114 ethanol plants, compared with 95 in January 2006, with 80 more under construction and hundreds more in various stages of planning, according to the Renewable Fuels Association.

When all of the current plants under construction are completed, probably in early 2009, ethanol plants will need about 4.3 billion bushels of corn a year to produce more than 12 billion gallons a year.

Ken McCauley, president of the National Corn Growers Association, said the planting report showed that farmers responded to demands from the ethanol and livestock industry to grow more corn.

“It really shows you that that market is doing its thing,” said Mr. McCauley, a Kansas farmer.

But news of a record corn planting did not please everyone. Ken Cook, president of the Environmental Working Group, an environmental advocacy group, said the report should serve as a warning to Congress on the consequences of an ethanol boom, which include increased water pollution from fertilizer. Corn requires heavier applications of nitrogen fertilizer than any other crop.

“Up until now, ethanol policy has been little more than a political bidding war,” Mr. Cook said in a statement. “Policy makers are outdoing one another to propose the biggest, fastest expansion of subsidies, and the most aggressive federal mandate to produce more ethanol and put more of it in our gas-guzzling automobile fleet.”

For farmers, the decision to plant corn is simple math.

Jim Stephens, president of Farmers National Commodities, which analyzes grain markets, said farmers typically make slightly more money an acre from corn than they do from soybeans. But this year, the gap has widened significantly.

Even with prices down late yesterday, he said a farmer would make $110 more an acre with corn instead of soybeans, assuming typical yields.

“It is significant,” Mr. Stephens said. “That’s why there is such a shift.”

Mr. Bozeman, the cotton farmer, agreed. “It’s not profitable to raise cotton, not for me anyway. Not this year. Not with $4 corn.”