We Eat Corn and Now We Can Gas Up with Corn!

Farming is a risky venture even in the best of times. Prices for seeds, fertilizer, and equipment versus prices for end products can be influenced by all sorts of variables, from weather to global trade trends. Hurricanes and droughts or government decisions on subsidies and import-export duties are unpredictable factors for most farmers. It can be difficult enough sometimes just to decide if the timing is right for plowing or planting, for applying herbicides or adjusting a watering schedule, for culling seedlings or starting another round of fertilizer applications. However, if the financial underpinnings don't work out in the farmer's favor, then the whole enterprise is in jeopardy, including ownership of the land the crop is being raised on.

Corn is one of the top agricultural crops in the U.S., and this year corn prices have been extremely volatile. Despite early indications that spring floods in the Midwest would throw off production, area farmers recovered and brought in bumper crops. Accordingly, prices soared and then later dropped in classic demand-supply response.

What is interesting about this relatively mundane economic occurrence is corn itself. No longer is this sun-colored grain merely a popular consumer foodstuff or an acceptable animal feed, it is also that marvelous substance, a biofuel. Corn-based ethanol production has really taken off in this country. Check the gas pump next time you fill your automobile's tank, as there's likely to be a notice that the gas you are dispensing is up to 10% ethanol. That's right: corn, processed in a certain way, is a government-endorsed gasoline extender.

Returning to the pricing situation, we now see corn growers initially buoyed by a rapid rise in prices and then stressed by a fall to prices which didn't cover expenses. Remember, this year also saw super-high prices for gasoline and transportation costs. But ethanol producers were also affected. So tough was this year's season financially that one major ethanol company, VeraSun, has declared bankruptcy.

However, while some industry contraction or consolidation is under way, spurred by erratic commodity prices and inefficient business models, other agribusiness and alternative energy concerns are expanding. Biofuel plants in Brazil, plants using sugarcane and not corn as the source, are producing enough for export; and American companies, including Archer Daniels Midlandand Monsanto, are investing in this South American country. Efforts to develop renewable energy sources and curtail dependence on foreign fuel reserves appear to be driving the growth of ethanol production worldwide, or at least hemisphere-wide.

The agriculture industry has profited from the intense interest in convertible plant stocks, especially corn. But market conditions, such as the current globally recognized economic recession and related credit crunch, have put a damper on expansion of dedicated corn acreage in the U.S. Purchases of state-of-the-art agricultural equipment have also slowed, and new ethanol production projects have been placed on hold. Ethanol producers in the U.S. have to wait for demand to increase and some are lobbying for higher-percentage ethanol-gasoline blends.

For now, farmers must reassess the events and results for 2008 and consider carefully what may be possible for the 2009 growing season. Will the U.S. see another bumper corn crop and, if so, will such a boon bring real benefits to the grower, the corn crop purchaser, and the end user--me, you, our animals, and, oh yes, our cars?

Christoper S. Rubaber, "USDA projects lower corn, soybean harvests", Associated Press

Lynn Grooms, "Too much ethanol?" Farm Industry News

Matthew Wilde, "Ethanol hits bump in the road but still fueling Iowa's economy." Waterloo Courier

Kate Galbraith, "Economy Shifts, and the Ethanol Industry Reels," New York Times