ALAN GUEBERT/For the Lincoln Journal Star | Posted: Saturday, September 16, 2006 7:00 pm
Drop a pebble in the ag policy pond and the resulting ripples seem to rush over many farmers’ self-interest.
Drop a rock in the deepest ag policy lake, Washington, D.C., and the non-farming wonks there begin searching for solutions to problems that don’t exist.
The latest illustration of this curious phenomenon is ethanol, the biggest rock to drop in the U.S. farm pond since the Soviet Union’s 1970s grain-buying spree. So big and so loud is the ethanol boom that farmers and their Capitol Hill lobbyists now are beginning to worry over what they see as a future fuel-versus-food fight.
The tussle goes like this: If ethanol demand continues to grow at today’s pace, American consumers soon will be forced to choose between corn-based fuel and corn-on-the-cob or corn-fed beef. As such, American farm policy must be redirected now to ensure the nation grows enough corn for fuel, food and feed.
Keith Collins, chief economist at the U.S. Department of Agriculture, sanctioned this view Sept. 6 when, in testimony before the Senate’s Environment and Public Works Committee, he suggested U.S. farmers need to plant 90 million acres to corn by 2010—or 10 million more than in 2006—to meet USDA’s projected food, feed, fuel and export demand.
Indeed, Collins said, the grain demand could become so severe that as much as seven million acres of today’s idled 35-million-acre Conservation Reserve Programmay be required to grow corn in just three years.
While the prediction surely put smiles on faces at Deere, Monsanto and Archer Daniels Midland, farmers should count the ethanol eggs in their basket before accepting USDA and agbiz’s desire to greatly expand that basket. For example:
—Despite the current ethanol bonanza, 2 billion bushels of unused 2005/06 corn was carried into the new marketing year on Sept. 1; enough extra corn, in fact, to make over 4 billion gallons of ethanol.
—Likewise, ethanol’s explosive growth this year, as well as its heightening competition with food, feed and exports, delivered a national average 2005/06 corn price of $1.99 per bu., seven cents under 2004/05’s season average price.
—Even though USDA’s Sept. 12 Crop Production Report estimates corn used for ethanol will increase from 1.6 billion bu. in 2006 to 2.1 billion bu. in 2007, USDA reckons 2007 average corn prices will jog between $2.15 and $2.55 per bu., well below the record year’s average price of $3.24 per bu. set in long-before-the-boom 1995.
—That same Sept. 12 forecast also guesses ending corn stocks on Sept. 1, 2007 at 1.2 billion bu., or more than enough corn to keep you, me, our foreign customers and the ethanol mavens in food, feed and fuel.
These near-term facts also point to an irrefutable, long-term fact: America will never run out of corn regardless of future domestic or foreign market demand. That bold prediction is not bold at all because—as any Ag Econ 100 student can explain—price will ration supply.
For proof look at recent gasoline prices. Despite war, hurricanes, a growing domestic economy and fierce overseas competition for crude oil, the U.S. was never without gasoline because price, the point where supply intersects demand, rationed it.
Sure, we grumbled when gas prices topped $3 a gallon, but we still had fuel because price slowed demand to ensure supply. If it hadn’t, price would have risen until an inevitable market equilibrium was reached.
Corn growers and other potential biofuel growers now find themselves in a similar sweet spot. Growing demand will challenge future supplies, and price—rising prices—will decide the winner until the market sucks acres away from other crops to meet the higher food, feed and fuel demand.
Holy cow, this is what you’ve been waiting for; this is what the Washington wonks have been praying for. This is, in fact, the way markets work.
So let the farm groups and Capitol Hill worriers worry. Just don’t let them strangle this once-in-a-decade opportunity by releasing CRP acres to manipulate the market so Deere, Monsanto and ADM make money and you don’t.
Alan Guebert is a freelance agricultural journalist. He can be reached at agcomm@sbcglobal.net or at 21673 Lago Dr., Delavan, IL 61734.