Follow us on twitter
Site Feed
Podcast
Email Updates
Corn: Acreage and Prices Draw Attention
San Francisco Chronicle writer Carolyn Lochhead reported yesterday that, “Organic farming was hailed as a savior of family farms, the environment, the American diet and rural life — a crunchy David versus the Goliath of industrialized agriculture — during the first-ever hearing about organics Wednesday before the House Agriculture Committee…Organic farmers are vying this year to gain a toehold in the vast sprawl of federal farm aid programs as Congress rewrites its mammoth five-year farm bill set to expire later this year. Organic growers, now believed to number more than 10,000 — and a significant presence in California’s fruit and vegetable industry — are experiencing rapid growth nationwide as interest in healthier food continues to spread from local farmers’ markets to major supermarkets across the country.”
I. Corn
II. Farm Bill News
I. Corn
In the latest edition of the Iowa Farm Outlook, Iowa State Agricultural Economist Robert Wisner analyzed current factors impacting the corn market and noted that, “For the next few weeks, planting progress will be a key focus of the market. With this spring’s later than normal start in plantings for the entire Corn Belt, progress in the next few weeks will determine whether all of the intended 12.4 million acre increase in intended plantings actually materializes. Timeliness of plantings also is an important influence on yield potential. Corn plantings for the last three years have been well advanced by the third week of April and likely were a factor behind the highest three U.S. yields on record during those years.”
Dr. Wisner added that, “With today’s equipment, farmers have the capacity for rapid plantings if the weather permits, but the intended increase in acreage will require a slightly longer than normal planting season. Next week’s crop progress report will be especially important for the corn market. For the last three years, respectively, 18-state corn percentages planted for the comparable week were 25%, 30%, and 37% respectively. With wet fields in many areas and minimal spring fieldwork in the Midwest so far this year, it looks unlikely that progress will be close to these levels by next Monday.”
With respect to the number of acres that may actually get planted with corn this year, the report stated that, “In the last decade, corn plantings in a few years have varied by as much as 2.4 percent from the USDA planting intentions survey. This could be a year when that pattern is repeated, due to a late start of plantings and adjustments in the grain markets and fertilizer prices since the planting intentions survey. Since early March, when the survey was taken, December 2007 corn prices have declined by $0.17 from March 2 to the close on April 16. Old-crop May corn futures during the same time period declined by $0.57 per bushel. November 2007 soybean futures from early March to May 16 were down $0.08 per bushel. Old-crop May futures declined by $0.18 per bushel in the same period. Reports locally indicate prices for nitrogen fertilizer are well above last year. That also may be a factor influencing some slippage from intended corn acres to soybeans. In our latest longer-term balance sheet projections, we show the supply-demand scenarios assuming farmers plant 2 million fewer corn acres than shown in the March 30 planting intentions report, along with 0.9 million more soybean acres.”
Meanwhile, Brownfield’s Peter Shinn reported yesterday that, “There’s been no end of worry voiced about corn prices, which now range between $3.00 and $3.50 a bushel on a flat cash basis, and can run even higher in certain locales. And the issue emerged again during a question and answer session U.S. Ag Secretary Mike Johanns conducted after an address Wednesday at the USDA-USAID annual International Food Aid Conference in Kansas City Wednesday.
“Paul Green, International Trade Counsel for the North American Millers Association, pointed out to Johanns that the purchasing power of the food aid dollars appropriated by Congress had declined. Green said that was in part because of rising transportation costs, but also because of higher food prices. Green cited the hike in corn values created by strong demand from the burgeoning U.S. ethanol industry as a factor in higher food costs, and asked Johanns if USDA had a contingency plan to deal with the potential for runaway corn prices.
“‘As we look at ethanol and as we look at the tight supplies of certain carryover stocks in this country of products, we are putting ourselves in even more danger of volatility,’ Green cautioned.”
The Brownfield article indicated that, “In response, Johanns repeated assurances he’s made repeatedly in recent weeks that USDA sees cellulose, not corn, as the future of ethanol in America. But Johanns also defended the current corn price and said chronically low corn prices are a bigger concern.
“‘I will tell you $2.00 corn is a problem,’ Johanns asserted. ‘About the only way you can raise $2.00 corn is with a government subsidy – that’s not economically viable.’
“In fact, Johanns suggested corn prices of over $3.00 bushel ultimately make more sense than $2.00 corn. ‘Now we’ve moved into a market today in which corn is in the $3.00 to $3.50 range,’ Johanns said, ‘and actually that is a more realistic price.’
“Johanns also pointed out that grain costs make up just one-fifth of total food production expenses. He added that, even though corn prices clearly had increased over the last year, it is impossible to blame corn’s price-strength is the sole reason for food cost increases.”
In a related article regarding alternative fuels, Doug Struck reported in today’s Washington Post that, “But when the energy required to grow corn is counted, the advantage of ethanol is marginal, and using a food source to power cars remains troubling to some. Researchers are looking at other methods to convert cellulose such as grass or weeds or discarded lumber into fuels. Some have focused on using enzymes for that conversion, others on chemical or mechanical treatments.
“‘I don’t think there’s going to be a silver bullet,’ said Gregory Kats, managing director of Capital E, an energy consulting firm in Washington. ‘I think it’s clear there is a lot of opportunity. There is going to be a lot of innovation, and this is a case where letting a thousand flowers bloom is a good idea.’
“The plant rising in Guelph, 40 miles west of Toronto, is being built by one of at least three Canadian companies using variations of pyrolysis, an update of a technique used for years to produce charcoal.”
The Post article went on to explain that, “The wood debris is cleaned and ground into sawdust, then injected into a heated, airless chamber with nitrogen. In a flash, the sawdust vaporizes into three forms: oil that is drawn off and sold, gases that are re-burned, and char that can be mixed with the oil or used as a fertilizer.
“The process is considered ‘carbon neutral’ because it uses carbon that is in the wood and that through natural decay would one day contribute to carbon dioxide emissions anyway. With petroleum fuel, in contrast, crude oil is brought to the surface to emit atmospheric carbon that would otherwise have remained trapped underground. In addition, the new fuels are low in sulfur, which adds to smog.
“‘We are not using anything that can be used as a food source. We take residual waste — forestry debris, scrap wood, construction demolition wood,’ [Andrew Kingston, head of Dynamotive Energy Systems, the company building the plant] said in an interview at the company headquarters in Vancouver, B.C. ‘Residual biomass has little or no value, so the cost structure means you can compete.’
“While the process works in a laboratory, there are pitfalls to making it successful on a scale large enough to be commercially profitable, researchers acknowledge. A pilot plant by Dynamotive at West Lorne, Ontario, was heavily subsidized by government agencies, recorded large losses and never did achieve large-scale bio-oil production, a worrisome precursor to the plant being built in Guelph.
“There were ‘mechanical and design difficulties,’ Kingston said, ‘but we are confident we have resolved them.’”
II. Farm Bill News
Strong demand emanating from the increased use of ethanol has been a key factor in the higher market price of corn. As corn prices have risen, and are projected to remain at relatively strong levels in the future, the federal budget baseline for agricultural spending has decreased. Since market prices for some program crops are projected to be above price-triggered subsidy support levels, projected federal allocations for agricultural spending have also gone down. With less money available, debate over how to channel a smaller share of federal resources into specific policy areas will likely increase.
In particular, some farm policy observers have argued that the 2007 Farm Bill should contain a greater level of federal spending for conservation provisions.
A news release issued yesterday by the House Ag Committee stated that, “Today, the House Agriculture Subcommittee on Conservation, Credit, Energy and Research held a hearing to review USDA Farm Bill conservation programs. Congressman Tim Holden of Pennsylvania is Chairman of the Subcommittee.
“‘In the 2002 farm bill, we funded the most significant programs in order to preserve farmland and improve soil and water quality,’ said Chairman Holden. ‘The hearing today reminded us that despite budget constraints we must continue to support important programs for farmers and ranchers who want to implement conservation practices on their land.’”
A complete list of witnesses who testified at yesterday’s hearing, along with their opening statements, can be viewed by clicking here.
With respect to the administration’s 2007 Farm Bill conservation proposals (pages 41-63), Purdue University Agricultural Economist Otto Doering has provided a handy two-page summary of some of the specifics the executive branch is seeking to implement.
In part, Dr. Doering stated that, “The major pressures on USDA’s conservation program have been twofold. First, conservation groups, urban citizens, and others believe that a higher proportion of the budget might better be spent on conservation (working lands or CRP type reserves) than on commodity programs. Second, farmers have complained not only about a lack of resources for particular conservation programs (both matching funds and technical assistance) but also about the complexity of the current programs. The Administration’s proposal attempts to address both of these concerns.”
The paper also indicated that, “The Administration’s suggestions for the Conservation Title increase the dollar resources for conservation programs, attempt to simplify and consolidate programs, and also extend the reach of the Conservation Security Program. The key political and budgetary question is whether the increased funding for the conservation programs will represent funds diverted from the commodity programs. Within the Conservation Title, there may be competition among proponents of CSP (stewardship programs), EQIP (working lands programs), and CRP/WRP (land retirement programs). Also important is the desire by livestock producers and producers of non-program commodities or specialty crops to be able to tap into higher levels of assistance for conservation on working lands.”
In more detail regarding the budget issue, Chris Clayton noted yesterday at the DTN Ag Policy Blog that, “A series of major decisions affecting the overall posture of the Congress on spending will be tackled in the next few days as the House leadership attempts to craft a fiscal year 2008 budget resolution. Both the Senate and the House have draft resolutions, and are moving to organize a conference committee to resolve differences between the drafts.
“‘We very much want to pass a budget plan and we want to do that as quickly as possible,’ House Majority Leader Steny Hoyer, D-Md., told reporters at a weekly briefing on Tuesday. ‘We hope to see a conference appointed and proceed in the near term.’”
After a more detailed look at some budgetary mechanics, Mr. Clayton reported that, “Thus, budget mechanics still have the potential to limit the types of agricultural programs that could be offered in the future. And, they raise the likelihood of efforts to shift spending among programs — from commodity programs, for example, to those for conservation, or vice versa.
“However, it still is not clear how important these issues will be. Both the Senate and House budget resolution drafts authorize large amounts of additional ‘reserve’ spending above the 2007 baseline — $15 billion over five years in the Senate and $20 billion in the House. Under expected pay-as-you-go rules, the authorizing committees must find offsets for the reserve funds if they are to be available.
“Authorizing committee staff members believe the offsets will be found, by hook or by crook, but others are more skeptical. As a result, the highly complex budget debates are extremely important to producers and should be watched very carefully as they unfold.”
For a more detailed look at “reserve fund” spending issues, see this FarmPolicy update from last week.
Recall that the House Ag Committee also heard testimony this week regarding the economic impact of organic agriculture.
San Francisco Chronicle writer Carolyn Lochhead reported on this issue in yesterday’s paper, noting that, “Organic farming was hailed as a savior of family farms, the environment, the American diet and rural life — a crunchy David versus the Goliath of industrialized agriculture — during the first-ever hearing about organics Wednesday before the House Agriculture Committee.
“Organic farmers are vying this year to gain a toehold in the vast sprawl of federal farm aid programs as Congress rewrites its mammoth five-year farm bill set to expire later this year. Organic growers, now believed to number more than 10,000 — and a significant presence in California’s fruit and vegetable industry — are experiencing rapid growth nationwide as interest in healthier food continues to spread from local farmers’ markets to major supermarkets across the country.
“But growers are not nearly keeping pace with consumer demand for organic products, estimated to be expanding by 20 percent a year. Rep. Dennis Cardoza, a Merced County Democrat who chairs a new agriculture subcommittee on horticulture and organics, hopes to include organic farmers in the farm bill.”
The article stated that, “Organic growers face an uphill battle against the entrenched commodity groups that get the lion’s share of farm spending. Mostly, they asked at Wednesday’s hearing not for direct aid, but for an added share of the research and education money, as well as better statistical collection to convince bankers to make loans.
“Organic farming is a complex undertaking that relies on crop rotations and other ecological management of insects, weeds and diseases rather than pesticides and chemical fertilizers. Even if the nation’s rapidly aging farmers were not reluctant to adopt such methods, experts said at Wednesday’s hearing that federal farm programs make it even more difficult to take the leap.”
As far as federal funding, Michael Doyle reported earlier this week in the Sacramento Bee that, “The federal government spends less than $20 million a year on organic farming research. Organic farming advocates want this increased in the new farm bill to $120 million annually.”
Similar to the funding constraints facing proponents of higher levels of Farm Bill conservation spending, organic producers will also have to make persuasive arguments to obtain an increasing share of a decreasing amount of federal budgetary resources.
In a related article on organic farming, Andrew Martin reported in today’s New York Times that, “Dairy farmers are rushing to convert to organic milk production, and it is largely because of a blueberry farmer who lives in Maine with a solar-powered computer and an outhouse outfitted with a stained-glass window.
“Arthur Harvey, the blueberry farmer, persuaded a federal court in 2005 that some regulations on organic milk were too lax, including those governing how a dairy farmer can convert to organic status.
“As a result, hundreds of dairy farmers decided to switch last spring so they could complete the yearlong conversion before the more stringent ‘Harvey’ rule takes effect in June.
“‘When this court case was decided, we said, ‘Now’s the time for us. Let’s do it,’’ said Edward Walldroff, a farmer in La Fargeville, N.Y., who said that five other dairy farmers nearby were doing the same thing. ‘It’s really kind of exciting to see that happen, and know that six smaller-type farmers have some real viability now.’”
Mr. Martin also noted that, “The sudden glut would be remarkable because there is usually a chronic shortage of organic milk. Demand has been growing 20 percent or more a year, so much so that in 2005, some retailers posted signs in their dairy cases apologizing for not having enough of it.
“While the increase should fix the supply problems, consumers probably will not see lower prices. Several manufacturers and retailers said they did not plan to reduce prices, in part because the oversupply would be quickly absorbed by increasing demand. Organic milk can cost twice as much in stores as regular milk.”
The Times article added that, “The Agriculture Department does not track the number of organic dairy farmers, nor does the Organic Trade Association, the primary trade group. But farmers say that many among them are converting to organic farming, and Mr. Harvey’s lawsuit is not the only reason. Rock-bottom prices for conventional milk have also pushed farmers to consider more lucrative alternatives.
“Farmers can charge nearly twice as much for organic milk, but feed costs are higher and the conversion can be challenging, since no antibiotics or growth hormones are permitted.
“In addition, organic dairy farmers must give their cows organic feed, meaning they graze on pasture land or eat feed grain that has not been sprayed with chemical fertilizer or pesticide.
“Last April, for instance, conventional dairy farmers received a national average of $12.10 for 100 pounds of milk, compared with $15.20 in April 2005, according to the department. Organic dairy farmers, by contrast, were paid about $22 for 100 pounds of milk last spring.”
-Keith Good
