Corn and soybean farmers are in an enviable position, and it’s all due to projected expansion in biofuels, according to economist Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University. Babcock testified this week before the U.S. Senate Agriculture Committee at the Omaha Field Hearing on food and fuel production.
For corn farmers, increasing ethanol mandates means they have a new built-in demand of between 25% and 30% of their crop, according to Babcock. Just to entice farmers to plant adequate corn acreage in the coming years will require prices high enough to cover the additional costs involved in increasing corn plantings from 80 to 90 or 95 million, he said.
“I estimate that prices below $3.50 to $4 per bushel will result in inadequate acreage,” Babcock said. “Hence, I do not expect prices to fall below this level in the next five years.”
Babcock went on to testify that if we continue to have crude oil prices in excess of $100 per barrel and a string of good weather years that drive price down below $4 per bushel, then the economics of corn ethanol production would look “so good that we should see a new round of investment take place, taking capacity of the corn ethanol industry beyond mandated levels.”
As for the high feed costs on the U.S. livestock industry, he described the future as “fairly straightforward”: livestock prices will eventually increase enough over the next year or two to cover producers’ increase feed costs. There are only two ways this can happen. Either U.S. livestock producers will reduce production or producers in other countries – who face the same feed cost pressures – will reduce production.
What are your thoughts on this "enviable position?"
For Babcock’s complete testimony, visit: www.card.iastate.edu/presentations/