Producers gather for the annual Kansas Commodity Classic

"The battle for acres has begun," Holbrook said.

"This program could fill the gap for the variable producer who does not always have a good yield," McCauley said.

By Doug Rich

What a difference a year makes.

At the 2005 Kansas Commodity Classic corn, grain sorghum and Wheat producers were wondering if there would ever be an opportunity to make a profit. This year they are wondering how high the prices for their commodities will go and how long they will stay this high.

Markets and the looming debate over the next farm bill dominated discussions at the 2006 Kansas Commodity Classic.

Bill Holbrook, ProExporter Network, attributed the current upward trend in markets for all grains to the amazing demand created by the biofuels industry. Holbrook said it is a little like having a baby gorilla. One day he is a cute little bundle and the next day he is all grown up and needs to eat.

"The battle for acres has begun," Holbrook said. "The demand for ethanol will continue to grow and it will require increased acreage and more yield."

Holbrook expects many of the acres needed for ethanol production will come from soybeans. Traditionally in the Corn Belt producers have followed a 50-50 crop rotation with corn and soybeans. Holbrook said that will probably change to 75 percent corn and 25 percent soybean rotation.

"We might get a few acres from the Conservation Reserve Program (CRP)," Holbrook said. "Three to four million acres could come out and be put to corn production." In the near term however, only about one million acres would be available from CRP.

"Next year we will use five billion bushels of corn for ethanol," Holbrook said. "We have never seen anything like this before."

Carry out figures for corn, wheat, and grain sorghum are all down and Holbrook said that is not a one year trend. Ten years from now we could have a 15 billion bushel corn crop and there would still be a downward trend in carryout.

Holbrook said there are flat to declining yield trends for grain sorghum and declining export markets. Grain sorghum will become somewhat of a limited crop but the price per bushel will be almost equal to corn.

Unlike other states, Kansas produces most of its ethanol from grain sorghum and not corn. Robert White, Director of Operation for the Ethanol Promotion and Information Council (EPIC) said in recent years up to 70 percent of the ethanol produced in Kansas was from grain sorghum. In Kansas ethanol is made from grain sorghum, Wheat starch, and corn.

The picture is much the same for Wheat with declining product, flat yields, and flat export demand. This year Wheat growers harvested the smallest crop in four years and supplies were already short. But the trend for Wheat prices is up and there is still strong demand.

"We have not seen the research dollars spent on Wheat that we have seen with other crops," Holbrook said.

In agriculture it has often been said that high prices are the cure for high prices. Holbrook said that may not be the case with the current trend in grain prices. The unique demand created by ethanol is not seasonal or cyclical and it will only get bigger.

"We could see new price plateaus in meat and grain industries," Holbrook said. "A whole new demand component has been injected into the grain industry."

The wild card this year is the next farm bill. The National Corn Growers Association (NCGA) has made a unique proposal for the 2007 National Farm Security Act. The proposal has been presented to all of the commodity groups for feedback and Ken McCauley, a Kansas corn producer and current NCGA president, made a presentation at the Kansas Commodity Classic.

The NCGA Public Policy Action Team has developed an alternative set of farm programs that could replace the current set of programs in the next farm bill.

"This program could fill the gap for the variable producer who does not always have a good yield," McCauley said. "This program would enhance targeting of payments when farmers most need the help. The people that need the assistance will get it. LDP does no good if you don't have a crop."

Basically, the NCGA proposal would keep the current calculation methods for directions payments; change the non-recourse loan program to a recourse loan program; create a new program called the Base Revenue Protection program; and change the current countercyclical program into a revenue countercyclical program.

According to NCGA the objective of this proposal is to better stabilize farm income for producers of all program crops.

"We are getting ahead of the World Trade Organization (WTO) without them telling us what to do," McCauley said. The proposal is WTO complaint.

McCauley said the objectives of the proposal are to target payments to arrive when farmers need them most; increase market orientation of farm programs; and to improve the way taxpayer dollars are spent in support of agriculture.

Greg Shelor, a Kansas farmer and president of the National Sorghum Producers (NSP), said his organization has not had time to analyze the NCGA proposal yet.

"We have not been able to run the numbers yet to see exactly what it will do for sorghum.," Shelor said. "The concept is good but we just need to see if it will work for sorghum or not."

NSP is busy developing a national checkoff program.

"Just about every member state is in favor of having a national checkoff," Shelor said. "But we still have some details to work out between representation and pass back. I think it will proceed forward and that it will generate money for significant research."

John Thaemert, a Kansas farmer and president-elect of the National Association of Wheat Growers has had a chance to look at the NCGA proposal.

"The biggest obstacle to overcome with this proposal would be the five-year Olympic average for establishing yields," Thaemert said. "In crop insurance we have never found a way to confront and address it other than T-yields and yield plugs and it will be the same situation with this program."

"We (NAWG) has looked at a revenue program for quite sometime, but it just does not work for us," Thaemert said. "The main reason is the volatile production that we face."

"The further east you go the more that the yield history stay the same or follow trend line yield and the better off that program will support the safety net that you need," Thaemert said. "When you are in a situation where you have volatile production or ongoing drought it can be a problem."

Thaemert stressed that NAWG is willing to work with any and every commodity organization.

"We can't fight each other," Thaemert said.

"When we run the numbers and look at policy that will help our members, the best thing we see is a fixed payment that is reliable because we have a very unreliable income stream in Wheat production," Thaemert said.

NAWG would like to stay with a non-recourse loan that producers can forfeit or repay and take possession of the grain if they want to.

Thaemert said NAWG wants farm legislation that is equitable, predictable, trade friendly, and simple to use. Thaemert said we need to get back to de-coupled programs.

"We have a rare opportunity to put together a policy that will benefit Kansas," Thaemert said.

Doug Rich can be reached by phone at 785-749-5304 or by e-mail at richhpj@aol.com.

Date: 11/22/06

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