II. Cold Weather Hurts Growers
Dan Chapman, writing in yesterday’s Atlanta Journal-Constitution, reported that, “A constellation of high oil prices, government support and private capital fuels ethanol fever nationwide. Nearly 80 new plants are under construction or proposed, and ethanol production could more than double to 12 billion gallons within two years.
“On Jan. 4, the day Congress convened, Senate Democrats and Republicans introduced the BioFuels Security Act, requiring the oil industry to blend 60 billion gallons of ethanol and biodiesel by 2030. The upcoming farm bill will likely pump billions more dollars into renewable-energy programs.
“The ethanol elixir is potent medicine for a country addicted to oil. But the fuel-from-corn cure could prove more damaging to the national and global economies, and consumers worldwide, than the current pain.”
California Farmers Scrambled This Weekend to Salvage Crops From Freezing Temperatures (Sacramento Bee)
Mr. Chapman added that, “Demand for corn jacks up the price of corn feed used by the beef, pork and poultry industries, as well as myriad products that depend upon corn-based additives. Consumers could pay more for Corn Flakes, Coca-Cola, milk and salad dressing, food companies warn.
“High-priced and hard-to-get corn could also inhibit poor countries’ ability to feed their people. U.S. exports might dwindle and lead to shortages if domestic food and fuel production takes precedence.”
The article also pointed out that, “Until now, the ethanol boom hadn’t really reached the Deep South. But First United Ethanol’s hundred-million-gallon-a-year factory, scheduled to open south of town in mid-2008, promises to be the largest biofuel plant in the Southeast. More are expected.”
With respect to production allocation decisions by farmers, the AJC article noted that, “Farmers in Georgia and Alabama are expected to plant more corn in the future, allowing First United to potentially pay less for raw materials. Steve Woodham, who sells seeds for Monsanto, said corn seed orders are up 15 percent to 20 percent this year in Georgia and across the nation.
“Switching to corn, though, is an expensive proposition for farmers already heavily invested in cotton and peanut production and equipment. Not even Murray Campbell, the chairman of First United who grows 1,300 acres of cotton and peanuts, is planning to switch to corn anytime soon.
“But the farm-gate price of corn averaged $3.25 a bushel last year, according to the American Farm Bureau, a price almost guaranteed to get farmers’ and bankers’ attention.”
Mr. Chapman also pointed out that, “U.S. taxpayers gave corn growers $9.4 billion in subsidies in 2005 — the largest commodity handout — according to the nonprofit Environmental Working Group in Washington. (Subsidies are expected to drop with higher prices.)”
Robert Manor, writing in Saturday’s Chicago Tribune, reported that, “A.G. Edwards & Sons Inc. sees high corn prices as the coming norm, not the exception.
“‘We believe the move above $3 per bushel is a structural shift driven by ethanol related demand growth,’ wrote analysts for the investment house. ‘We expect corn prices to remain strong.’”
The Tribune article also explained that, “But the high price of corn seems to be having no effect on U.S. exports, at least not yet.
“‘Mexico and Japan have been huge buyers of corn,’ said Vince Ambrose, a trader broker for Chicago-based Man Financial Fox Investments, one of the largest commodity trading companies in the world. Taiwan and South Korea, which once bought much corn from China, have increased their U.S. purchases, he said.
“‘Higher prices at some point will cut demand,’ Ambrose said. He predicted that at somewhere around $4.50 to $5 a bushel corn sales will stall as potential buyers turn to alternative grains or do without.”
As noted earlier, the change in the commodity price environment, along with issues associated with production costs, is having an impact on what producers may plant.
Nancy Cole, reported in Saturday’s Arkansas Democrat Gazette that, “Arkansas farmers are estimated to have planted 830, 000 acres of wheat last fall, up 127. 4 percent from the 365, 000 acres that were planted in 2005.
“Soybean planting in 2007 is likely to increase in 2007 by several hundred thousand acres, [Trey Reaper, extension service soybean agronomist] said. Arkansas produced 26. 3 million bushels of corn in 2006, down 12. 8 percent from 2005. The statewide average yield of 146 bushels per acre set a record, surpassing the old record of 145 bushels that was set in 2001.
“Arkansas’ corn acreage in 2007 could reach 500, 000 acres, said Jason Kelley, extension service wheat and feed grains agronomist.”
Bloomberg news reported yesterday that, “Corn planting may climb more than 10 percent this year and 5 percent in 2008 because of rising demand for ethanol, reducing the acreage devoted to soybeans and cotton, according to the American Farm Bureau.
“Farm Bureau economist Terry Francl predicts that growers will plant 86.5 million acres of corn this year and 91 million in 2008, compared with 78.6 million in 2006. The rush to plant more will mean less land available for soybeans and cotton, he said.
“Increased corn acreage, fueled by an 81 percent rally in prices last year, still might not produce enough grain to meet record demand for ethanol, Francl said.”
Prasenjit Bhattacharya, writing today at The Wall Street Journal Online, reported that, “Corn prices are likely to reach unprecedented highs in the next two to three years, as a growing ethanol boom in the U.S. is likely to severely limit its availability for food and feed use.
“This has fueled concerns that corn, a staple food ingredient in many countries and widely used as feed in the poultry and livestock sectors, may move out of reach for poorer consumers, boosting food prices in general.
“In Mexico, rising prices for corn have become a hot political issue, as it is used to make tortillas, a food staple. The price of tortillas rose 14% last year, according to the central bank. In Mexico City, tortilla prices in some shops have risen 20%.
“Some lawmakers are calling for price controls, while incoming Economy Secretary Eduardo Sojo wants to help farmers increase production. Mr. Sojo said last week that increased diversion of U.S. corn toward ethanol production and away from Mexico’s consumer market is a major factor in the higher price.”
More specifically, with respect to Mexico’s corn production, Marla Dickerson, reported in Saturday’s Los Angeles Times that, “High corn prices are wreaking havoc on Mexico’s inflation rate and forcing shoppers to pay more for eggs, milk and tortillas. But they’re a godsend to farmers such as Victor Manuel Amador Luna.
“With world corn prices riding high on strong demand from U.S. ethanol producers, Amador is looking to expand production on his farm about 125 miles east of Mexico City in the state of Puebla. He planted most of his 222 acres with corn this year and would like to buy more land.
“‘I’ve never seen prices this high in my lifetime,’ said Amador, 79, his smile as wide as the crack in the dusty windshield of his Chevy pickup.”
The L.A. Times added that, “Corn futures for March delivery soared to the 20-cent exchange limit on the Chicago Board of Trade on Friday, hitting $3.965 a bushel after the U.S. Department of Agriculture announced a smaller-than-expected 2006 U.S. harvest of 10.5 billion bushels. Prices have surged 86% over the last year as plants that make corn-based ethanol fuel have sucked up a record 20% of U.S. production. U.S. agricultural officials said global inventories might fall to the lowest level in nearly 30 years, setting up a scramble among buyers to secure enough supply.”
And the article went on to include this excerpt, which is particularly interesting given Canada’s action last week regarding U.S. corn subsidies, “Agriculture has been a constant source of trade friction between Mexico and the U.S. since the North American Free Trade Agreement was implemented in 1994. Although overall farm trade between the neighbors has exploded and Mexico has narrowed its agricultural trade gap, Mexican producers have complained bitterly about fat U.S. government subsidies in commodities such as corn, beans and milk powder, which they say makes it impossible for them to compete in those crucial staples.
“Mexico has shed nearly 30% of its farm employment since NAFTA was implemented. Many of the jobs belonged to subsistence farmers who have fled for the United States.
“Some rural advocates say another wave of migrants will be headed north next year, when all remaining tariffs and quotas on agricultural products are lifted as part of the NAFTA agreement.
“But high corn prices are easing some of those concerns for now and putting more money in the pockets of rural dwellers such as Aldo Cruz Matillas, an 18-year-old farmhand in Puebla state. Local growers are paying him almost $11 a day to help with this year’s harvest, a 20% pay raise over last year.”
In one slightly cautionary note, the L.A. Times noted that, “Still, some experts say the current boon could be short-lived. Although some economists project surging demand fueled by U.S. ethanol production for years to come, others said falling crude prices and a global rush to plant more corn could end the party in a hurry.
“‘Any significant drop in oil prices could cause a shakeout,’ said Pat Westhoff, program director at the Food and Agricultural Policy Research Institute at the University of Missouri. ‘You could see a lot of corn with no place to go.’
“Mexico’s biggest concern now is the effect that corn prices are having on consumers. Mexico ended 2006 with a higher-than-expected inflation rate of 4.05%, driven largely by rising food costs. Meat, eggs and milk have all increased partly because of high animal feed costs,” the article said.
Dow Jones news writer Anthony Harrup reported on Friday that, “Mexican Economy Minister Eduardo Sojo said Friday the government is authorizing duty-free imports of 650,000 metric tons of corn to help combat the rising price of tortillas, a staple in the Mexican diet.
“At a press conference, Sojo said the quotas include 450,000 metric tons of white corn from the U.S. under the North American Free Trade Agreement, and an emergency quota of 200,000 metric tons of white or yellow corn from anywhere else in the world.
“Rising corn prices due to shortages have pushed up tortilla prices in recent weeks, putting public pressure on the government to act since tortillas make up a significant part of the diet of the poorest Mexicans.”
II. Cold Weather Hurts Growers
Rich Connell, Henry Weinstein and Carla Rivera, reported in today’s Los Angeles Times that, “After two long nights battling to save his citrus and avocado crop from a record-setting deep freeze, Jim Churchill left his Ojai farm at 4 a.m. Sunday and headed for the Hollywood Farmers Market, hoping to find customers for his surviving Pixie tangerines.
“With the temperature already in the 20s and continuing to drop, the news from his and other orchards was not good. As much as half a billion dollars’ worth of California oranges, lemons and other produce was probably ruined, an industry spokesman said.
“‘We lost our entire crop of avocados, five acres,’ Churchill reported at midday, trying to focus on the brisk business at his fruit stall near Ivar Avenue and Sunset Boulevard. ‘This was going to be our first good harvest in seven years … then it all froze.’
“The dry, biting cold front iced over freeways, drove nearly 1,000 people into Southern California emergency shelters, left one rescuer hospitalized and shattered decades-old weather records from Los Angeles to Lancaster.
“But growers like Churchill suffered the most.
“Initial estimates by representatives of the state’s $1.3billion-a-year citrus industry placed losses in the hundreds of millions of dollars.”
The L.A. Times also noted that, “‘We have suffered significant damage,’ said Joel Nelsen, president of Citrus Mutual, a Tulare County-based trade group, comparing current damages with a $700-million crop loss in 1998.”