Corn in Demand

By Zach Spicer, The Tribune, Seymour, Ind.

Feb. 20–BROWNSTOWN — Farming and agriculture are just as much a business as they are a way of life.

There’s the supply and demand aspect, the fluctuation of prices and the changes in the economy, among other things.

Chris Hurt, an agricultural economist from Purdue University, visited with about 85 people, including farmers, Tuesday morning for the Farmer’s Breakfast at Pewter Hall in Brownstown. This was the fifth year for the event, which is sponsored by Community Foundation of Jackson County.

Hurt outlined this year’s agricultural outlook, from a local to a global basis.

One major step is the fuel industry’s use of the things farmers produce, including corn.

It’s being used in biofuels and ethanol to create renewable fuels.

“It’s a focus on what’s coming,” Hurt said. “There’s a lot more capacity as we open more ethanol plants. Five ethanol plants are opening this spring and summer,” as he said one recently opened in Richmond.

And this has all just begun, Hurt said. According to national numbers, in the next six months, they will go from 7.5 billion gallons of capacity to about 11.5 billion gallons of capacity, and it will take about 4 billion bushels of corn for the fuels.

“The expansion in ethanol capacity and the amount of corn, just the expansion, is going to take us in the next six months an additional demand of 1.4 billion more bushels of corn,” Hurt said. “That’s just the new plants that are opening in the next six months. It will take one and a half Indianas to supply that much corn.”

But once those plants are up and running, Hurt said, it should hit a flatline.

“What we are facing as a production sector is to try to supply this massive amount of new plants,” Hurt said. “You see a relationship that’s just virtually going vertical. This is a huge challenge for the 2008 crop to try to come up with enough corn to meet that demand. Our estimate is that we cannot reach that. We’re not going to be able to get enough corn and land in production this year to reach that much demand.”

It’s the law

Hurt said a federal energy bill passed in December “gives us a road map of where we are headed with these biofuels over the next 15 years, and that road map says we’re going to 36 billion gallons of renewable fuels by 2022.”

That industry, he said, by the end of this year, will be about 13.5 billion gallons of production a year, with about 500 million gallons of some soy biodiesel added in, resulting in about 14 billion gallons near the end of the year.

The energy bill also involves gasoline consumption. Over the years, Hurt said, people will drive more miles and more people will be driving, but the total consumption of gasoline will be reduced.

“With the combination of reducing the total amount of fuels that we use and producing 36 billion gallons of that as renewable fuels from our farms and our land around the country, we’ll be at about 20 percent of fuels, particularly on the gasoline side, that will be renewable fuels,” Hurt said.

“That’s the boldest program of any major country in the world,” Hurt said. “This is more than a road map, it’s the law. The law says that each year the sellers of fuel have to sell and have a certain blend of renewable fuels.”

He said that would use corn starch at first, and make a push toward cellulosic ethanol by 2012.

“This is a tremendous challenge for agriculture,” Hurt said. “It’s really a very long-run change and fundamental change in our energy policy in this country.”

That’s based on a security issue, Hurt said.

“If we get to 20 percent renewable fuels domestically produced, we’ll almost displace the oil we’re getting from unreliable sources out in the world, so that’s very encouraging.”

The renewable fuels would be something produced year after year.

“There’s certainly going to be bumps along the way,” Hurt added. “This law also says that these biofuels, or renewable fuels, that they have to reduce these greenhouse gases by 20 percent relative to what gasoline use would’ve been. At this point, it’s the law of the land. Each year, the federal government will put in place mandatory guidelines for what the oil companies and anybody that’s retailing gasoline for how much biofuels they have to have in their blends.”

The demand for ethanol will result in a demand for corn.

“There will be a three billion bushel increase in demand for corn and that’s just the ethanol increase,” Hurt said, as it will be on a nine percent increase a year.

This could create a problem, though.

Even though there were more corn acres in 2007, Hurt said, “We now have the biggest surge in demand coming at us in the next six months than we’ve ever seen on corn demand, and we don’t have any more land to put in production.”

Plus, he said corn, soybeans and wheat are all in “very, very short supply.” Wheat supply is at 60-year lows in the country, he said.

Unpredictable

On top of that, pricing is unpredictable.

“There is a huge amount of uncertainty when it comes to prices,” Hurt said. “Nobody knows what’s going to happen. This is a highly volatile situation. It is unprecedented opportunity that’s out there if these good prices come along. We really like things from a managerial standpoint that reduce downside risk and leave opportunity in place.”

But once again, supply and demand come into play.

“We can’t keep up with all this demand,” Hurt said. “You’ve got to raise prices to get the world to cut back on use, including our own consumers in this country.”

Boom periods are the result and they run in three-year periods.

“We just can’t catch up our crop production in the world, certainly in 2008 and probably not in 2009,” Hurt said.

“That says we’re out to the 2010 crop before maybe supply can be able to start to catch up with demand, from what we can see right now,” but it’s still early in the 2008 period, he added.

Managing margins

Margin management becomes increasingly important. That includes inputs and output pricing, protecting margins, conservatism, diversification and protecting downside margin exposure.

Dennis Wischmeier, a Jackson County farmer for more than 40 years, said the input costs are a top priority.

“You have to be aware of input costs as well as what you sell the crop for,” Wischmeier said. “I think right now we are in an era where it’s hard to use history to predict the future. There’s a lot of uncertainties.”

He said it comes down to controlling margins and being aware to lock in costs.

“A big change, obviously, is the cost of inputs have changed dramatically and the price received for products have varied a lot,” Wischmeier said.

Mike Mellencamp, who has a farm north of Seymour, agreed that handling input costs is key.

“There’s a lot of room for volatility of prices,” he said. “You’ve got to be able to handle those things and manage them.”

Bud Walther, president of the Community Foundation of Jackson County, said it was good having Hurt be accessible to local farmers.

“Being able to bring someone of the caliber of Chris Hurt, it is important,” he said. “We partner with the (Purdue) extension office to make it available to the local farming community.”

Richard Beckort of the Purdue Extension Office in Brownstown said Hurt’s presence is “getting production farmers to think about things ahead of time, and get them into a proactive mode instead of a reactive mode. It’s to get these producers up to speed, and most of them do a great job. Those are some of the things we need to be thinking of.”

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