Two economist highlights from ASFMRA
Jumping to the ethanol situation. Swanson said ethanol plants already built are a consideration for the future, whether they continue grain ethanol or are converted to various feedstock. They will be in play until they wear out. In the near term, cheaper corn will increase ethanol production. There has been a decline in demand for gasoline, as Elmore explained—five years of sustained decreased demand from year to year from 2007 to today.
Grain production and demand were a big part of Swanson’s presentation. He noted that corn at $2.25 per acre provided little incentive for farmers to try and increase production with any added inputs. Today, he is terming the U.S. as the “Saudi Arabia of corn.”
He said, “We have the greatest amount of production just behind China, and we have a huge per capita production, which means we have a lot of exportable grain, or we can slip it into fuel use if we want. This makes us the key driver around the world, but we are not alone.”
Production in the U.S. has gone up fast in the U.S. compared to almost every country, but Brazil has had a substantially larger growth rate than the U.S. He noted that the U.S. thinks of itself as the big gorilla because of our production. “We take it for granted that we are going to set the price in so many markets, but as others grow their supply in a per capita basis, they either exclude imports or they grow their ability to export. Cumulative change has a big impact.
“Eighty-five percent of the grain grown in this world is grown outside the U.S, but typically at half the yield of what we do in the U.S.,” Swanson said. He contends it is because they have not had the price or opportunity. They have to have a “price signal” for production to improve.
As for the U.S., production improvement is the way to become more profitable in farming than buying more land in a lot of cases, from Swanson’s point of view. “Land prices have responded, correctly so, to higher crop prices and lower interest rates.
“It would be foolish and unreasonable to not think land prices would not run up because of higher crop prices and low interest rates, but at the same time, land improvements have not seen the same distorting factor. If you go back and look at the cost to tile, level, irrigate or soil enhance an acre today versus 2005 or 2006, the actual cost per acre is not substantially different than what it was back in that period.”
There is competitiveness for the services and inputs that have kept prices down, and making improvements will return more than farmers realize, Swanson said. He contends too many farmers are taking the easy way in increasing production. Too many farmers are taking the “easy deal of buying land” instead of investing in technology and management.