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Sharpen your pencil prior to spring plantingTexas Looking ahead to the Spring 2009 crop season, producers will have to sharpen pencils and farm to the highest of efficiencies to boost profit margins, according to an economist. "You're going to have to squeeze every ounce of efficiency from inputs," said Dr. Mark Welch, Texas AgriLife Extension Service grains economist. "You're going to have to sit down with your banker and thoroughly go through every part of your operation and find out the real expectations. And right now, with higher input costs and lower commodity prices, it might not look good." Welch, speaking at the 20th Texas Plant Protection Conference recently in College Station, said producers need to establish a marketing plan and create a safety net that's far above the current federal farm program. Extreme volatility in the overall U.S. economy has seen tightened credit and commodity prices falling from historic highs earlier this year. Two key markets to watch, Welch said, are crude oil and corn. "There's definitely a tight relationship between the corn and the crude oil markets," he said. "Crude oil not only affects corn prices due to the linkage with the ethanol industry, but crude oil demand serves as a barometer of commodity demand generally. When we see an increase in oil demand and oil prices, that bodes well for commodity prices generally and grains specifically." The outlook for corn prices heading into 2009 hinges on several factors. Dry weather or a reduction in planted acres could produce a short crop, and prices could hit the $4.50 per bushel to $5 per bushel range, Welch said. Carryover stocks are tight and the market will be volatile given any threat to the corn supply, he said. "The single greatest factor holding prices down is the worldwide economic slowdown and the turmoil that it is creating in the financial markets," Welch said. "Once confidence returns to the investment community, commodities can once again trade based on their supply and demand fundamentals. Until then, nothing else matters. It will be hard to develop any upward momentum for prices until the speculative investors, the index funds and hedge funds, return to commodities." South American farmers were faced with the same set of economic factors heading into the current growing season--tight credit and high input costs. "How did they respond? They planted less corn and more soybeans," Welch said. Welch said 2008 will go down as one of the worst years for volatility among commodities. Though the price of corn has come down from its historic highs earlier this year, input costs are rising. "This is creating a cost-price squeeze where the cost of production is two to three times what it was five years ago," he said. Meanwhile, Dr. James Richardson, co-director of the Agricultural and Food Policy Center at Texas A&M University, gave an overview on the future of biofuel production in the U.S. and internationally. To meet the current demands set by the federal Renewable Fuel Standard, a broad portfolio of ethanol, biodiesel, algae and advanced mixed fuels will be needed, Richardson said.The program will increase the volume of renewable fuel required to be blended into gasoline to 7.5 billion gallons by 2012. "Grain-based ethanol is having a tough time right now," he said. "Many of the old plants are closing, (and there are) extended delays on startups and a slowing down in completion of plants under construction. Why? Eighty-percent of the cost of production is in cost of the corn (the feedstock)." Richardson said there is no silver bullet to filling the demand for ethanol and meeting the needs of the Renewable Fuel Standard. Looking to the future, he said there is a movement toward second-generation biofuel technologies such as a cellulosic ethanol and algae. "The science is catching up finally and it will be commercial one of these days. We have considerable improvement in commercialization yields." However, Richardson predicts livestock producers are getting ready for "a second set of tire tracks." Livestock producers saw their profits fall as feed costs soared this year due to strong export demand, growing economies in the rest of the world, hedge fund investors in the grains markets, and increased use of corn for ethanol. "If we start producing lots of dedicated energy crops to produce cellulosic ethanol, it will take grazing pasture and grain acres out of production," he said. "The livestock industry is going to suffer as we go into this second-generation of ethanol production." Richardson said scientists and plant protection researchers have a "whole new job ahead of us." "We're going to have to worry about insects. You think boll weevils had nice habitat to live in, let's give them a few thousand acres of switchgrass and energy cane to live in." Instead of one dedicated source of energy for renewable fuel, Richardson said, there will be a need for a shotgun approach. "My frustration is someone who walks up and says they have the correct answer or silver bullet," he said. "Folks, there ain't no silver bullet. We'd be better off if we had a shotgun shell. We've got to have a portfolio of renewable fuels and feedstocks that are being developed today." 12/15/08 Date: 12/11/08 Advertisement
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