Some well regarded economists contend $20 a bushel soybeans and $10 a bushel corn and wheat are not only possible, but likely for this year and beyond.
Sounds like a good deal for grain growers and a bad one for livestock producers and consumers, but are such high prices really good for any of us?
The drought in the Midwest, and it has been one of historic proportions, adds to the price differential from planting time to harvest time for corn and soybeans this year.
Corn, for example, that went into the ground in May for a projected return of $5 a bushel, went into the combine worth more than $8 a bushel, if the grower bypassed a lucrative futures market at planting time or before.
While the unexpected $3 a bushel boost in corn prices may put a little extra jingle in the pockets of grain growers, it will conversely take at least an equal amount of money out of the pocket of livestock producers, especially poultry producers in the Southeast.
One solution has been for several highly placed political leaders, including governors in North Carolina, Georgia, Virginia, Texas and Arkansas to call for at least a temporary end to the federal mandate for alternative fuel production.
Ethanol producers were quick to fire back with a full salvo explaining why this would be a bad idea for grain growers and livestock producers alike.
So, the long-debated fuel versus food debate adds a third corner to the economics triangle: food versus feed versus fuel.
Though cotton growers don’t have a proverbial dog in this fight — right now — the continued loss of cotton acreage to grain, primarily due to the run-up on prices — could easily add yet another F to the fray with fiber.
Monroe, N.C., grain and cotton grower Allan Baucom says the last thing any reasonable grain farmer would want to do is to put a livestock producer out of business. “They are our customers, our neighbors, our friends, and historically our most reliable partners in agriculture,” Baucom says.
Basis for business decisions
As to taking of grain for use in ethanol production, the North Carolina grower says the political arena created a mandate for corn for fuel. An infrastructure was developed and grain growers made business decisions based on this mandate, Baucom says.
“Why in the world does the same political arena think they have the right to change the rules, based on one set of criteria,” he asks?
“Ultimately agriculture, as a whole industry, is in this current predicament together. The different segments of the industry have to learn to work together better, rather than make political moves that may provide a temporary benefit to one segment, but a long-term detriment to the whole industry, the North Carolina grower adds.
Political involvement in the food-fuel-feed controversy reached a milestone of sorts in August when Governors Beverly Perdue of North Carolina, Nathan Deal of Georgia, John McDonnell of Virginia, Rick Perry of Texas and Mike Beebe of Arkansas filed petitions with the EPA to suspend the ongoing Renewable Fuels Standard mandate for corn-based ethanol production.
Though most people on both sides of the issue may think the Governors Perdue and Beebe acted in unison, that may not be the case and there may be some collateral damage to soybean growers because of some of the language endemic to Governor Perdue’s petition request.
Charles Hall, executive director of the North Carolina Soybean Growers Associations says, “I noticed that Gov. Perdue specifically mentioned soybeans and biodiesel. I thought EPA was seeking comments on corn ethanol, so I was a little surprised to see soybeans included in the governor’s request to wave the RFS volume “in whole” and not just the ethanol portion.
“If the request is granted, that would obviously have implications for the biodiesel industry, and I’m not sure biodiesel is really under much scrutiny or that a waiver of the biodiesel portion is needed,” Hall says.
Also, Gov. Beebe from Arkansas only specifically mentioned corn ethanol in his letter and did not address soybeans and soy biodiesel. So there are some differences in the two governors’ requests, he adds.
“I hate to see biodiesel tarred with the same brush as ethanol. There are some fundamental differences on the feedstock supply side. Soy biodiesel doesn’t divert soybeans away from one intended use and allocate it to another. The biodiesel plants use soy oil, one component of the bean, as the feedstock. The soy meal, the other component, goes to livestock feeding as always,” Hall says.
Under the 2005 U.S. Renewable Fuels Standard, a certain volume of the nation’s transportation fuel must be blended with such non-fossil fuels as ethanol, which is distilled primarily from corn. This year’s ethanol requirement is 13.2 billion gallons, up from 12.6 billion gallons in 2011. That figure is set to grow to 13.8 billion gallons in 2013.
Overall, the law aims to increase total use of renewable fuels in the U.S. to 36 billion gallons in 2022 from 9 billion gallons in 2008, according to the Renewable Fuels Association.
Not an ideal ethanol source
Though there is some level of agreement among all parties involved that ethanol from corn is not the ideal source of renewable energy, corn growers have been quick to step up production to meet their part of the mandate.
The same congressional act calls for a higher percentage of fuel to come from cellulosic sources. So far, virtually no ethanol is being produced from any source other than corn in the U.S.
There is no doubt the livestock industry is being hard hit by the high price of grain — none harder than the huge poultry industry in the Southeast.
In a plea for help, Georgia Governor Nathan Deal, citing a study by the University of Georgia, complained recently that rising corn prices are costing chicken farmers in his state an extra $1.4 million a day.
In a letter to EPA administrator Lisa Jackson, the Georgia governor contends, “these additional input costs are not sustainable.”
The clock is now ticking on the government’s response to the petition from Governors Perdue and Beebe and will soon begin ticking on the late August petitions from Governors Deal, Perry and McDonnell.
The EPA has acknowledged receipt of the waiver petitions from the governors. Once that acknowledgment is formally published in the Federal Register, which happened in late August, the clock on the 30-day public comment period began to tick.
Publication also begins the clock on the 90-day window in which the EPA must rule on the petition request. Back of the envelope math puts that date sometime in the middle of November — after the U.S. presidential election.
The Renewable Fuels Association (RFA) contends the petition is an illogical attempt by politicians to help their constituents.
“While the drought has reduced the size of this year's national corn crop, USDA says it will still be the eighth-largest in U.S. history.
“Moreover, this year's world corn crop will be the second-largest ever, trailing only last year's record,” says Matt Hartwig, director of communications for the Renewable Fuels Association.
Hartwig points out that the ethanol industry also produces animal feed. In the ethanol production process one-third of every bushel used is returned to the feed market as high-protein feed, commonly called DDG or distillers dry grain.
University of Kentucky Agricultural Economist Will Snell says politicians may be too liberal with their use of numbers to describe the impact of the ongoing food versus feed versus fuel controversy.
Overall, only about 15 cents out of every dollar consumers spend on food can be attributed to the value of farm products. Packaging, storage, transportation, labor, profits, among other non-farm items comprise 85 percent of what we pay in the grocery stores for our food, Snell says.
“Actually in the short-run, we could see meat prices decline or at least stabilize due to the drought forcing herd liquidations and thus inducing higher short-term meat supplies,” he adds.
As livestock inventories shrink, future meat supplies will be lower, pushing meat prices higher this winter and in early 2013.
The USDA is projecting meat prices to increase 3.5-4.5 percent and food prices overall to increase by 2.5-3.5 percent in 2012. Most consumers would likely be surprised to know that is only a 1 percent greater increase than has occurred over the past decade or so.
There is no minor surgery when it’s happening to you. Likewise, there is no minor blip in the global production of grain or livestock, if that blip is happening on your farm.
It’s likely in the short-term ethanol manufacturers and livestock producers will come to some middle ground, but same comfort zone for sustainable grain prices may be tougher to come by.