May 7, 2007

 

US farmers plant more corn to cash in on ethanol boom

 

 

From New York to California, and even parts of the Deep South, more acres of corn are expected to be planted this year than at any time since World War II as farmers rush to cash in on the surging demand for ethanol.

 

"It's the price. The price is telling you to go toward more corn," said Mike Olson, who plans to bump up corn by 15 percent on his 2,750-acre Illinois farm. He harvested a 50-50 split of corn and soybeans last fall.

 

After hovering around US$2 a bushel for a decade, corn prices have nearly doubled in the last year, pumped to near records by more than 100 ethanol plants that have sprouted as America seeks renewable alternatives to foreign oil.

 

On farms across the nation, the lure of more than US$100 an acre from corn is too good to pass up in an industry whose fortunes depend on fickle weather, global politics and annual subsidies in the billions.

 

Still, some experts warn that the price has nowhere to go but down if the market is flooded, and not everyone has forgotten how a massive grain deal with the Soviet Union in the early 1970s and the 1996 drought in China shot corn prices to record highs--prices that later wilted.

 

Keith Blunier, who farms 400 acres in central Illinois, also wonders whether ethanol demand could wane if oil prices drop or other fuel sources prove viable.

 

"I've been through the '70s and seen the ups and downs," said Blunier, who plans to keep his usual split between corn and soybeans on his farm.

 

For now, the rush is on.

 

About 90.5 million acres of corn are expected to be planted this year, up 15 percent from 2006 and the most since 95.5 million acres were planted in 1944. Of the 48 states that grow corn, only Massachusetts is expected to plant less this year.

 

"I think it's an opportunity for a lot of farmers. It's one that probably only comes along every 20 or 25 years," said Terry Francl, senior economist for the American Farm Bureau Federation.

 

The USDA estimates cotton acreage will drop 20 percent nationwide this year and soybeans will drop 11 percent. Agriculture Secretary Mike Johanns has downplayed any impact on food costs, saying the USDA anticipates typical 2 percent to 3 percent increases that can be pegged to a dozen different factors.

 

Still, there are plenty of unknowns as ethanol commands a growing share of a US corn crop that also feeds cattle, hogs and poultry, and is a food additive that goes into everything from breakfast cereals to candy and beer.

 

"It's not going to happen overnight," said Dale Lattz, a farm-management specialist with the University of Illinois extension service. "It would take a year or two for significant effects."

 

Whether the harvest meets everyone's needs will depend on the weather, and some farmers may choose other crops depending on the planting season forecasts. Analysts also say ethanol-driven demand coupled with the weather uncertainties will make for a volatile corn market.

 

Many farmers and analysts say corn prices likely won't dip below US$3 per bushel this year due to ethanol demand that is expected to consume 3.2 billion bushels of corn, up from 2.1 billion bushels last year.

 

The American Farm Bureau's Francl predicts prices will stay in the US$3 to US$5 per bushel range for the next four to five years. Others suggest farmers will be able to adapt if a market emerges for non-corn biofuels.

 

"If federal policy does not change and oil prices stay in the US$50 to US$65 range, this isn't going to go away for a while," said Bruce Babcock, director of Iowa State University's Centre for Agricultural and Rural Development.