March did not go out like either a lion or a lamb. In fact, after the U.S. Department of Agriculture released its Prospective Plantings report midday March 31, the month — as well as the 2016 corn market — highballed it into history faster than a runaway train.
The coal was USDA’s forecast that farmers intend to plant 93.6 million acres of corn this year. That figure is 2 million acres more than anyone had dared to even think and 3.5 million acres more than the average best guesser had guessed. Market sages stared at the number as if it was the sun: blinding, searing, killing.
Soon, though, most began to scour record books for a historical fact or figure that might put the number into a more hopeful light. The search hit pay dirt when, Alan Brugler, a contributing analyst at DTN, uncovered a gem: Corn, he offered, “has seen final acreage below the March intentions in 13 of the past 20 years.”
The “largest swing in the last 20 years” was 3.073 million acres. A drop of that size this year, he noted, however, would cut trendline production by just “500 million bushels.”
Supply issue
Nothing can be done, though, to reduce the 1.8 billion bu. we’ll still have in the bin when the 2016 harvest begins. The world feedgrain picture is worse; 21 percent of the previous crop, or 207 million metric tons, will remain when the new marketing years begins. And, yikes, now the U.S. might plant 93.6 million acres of corn this year?
Yes, of course, that’s crazy. For more than 20 years, though, American farm policy often has encouraged farmers to produce first, then figure out what to do with the market-splattering surplus. Over those years, the handiest, most universal fix has been ethanol. Creative policy solutions to encourage — and, short of that, mandate — domestic ethanol usage have redirected American acres toward corn (and its rotational complement, soybeans) and away from other crops like cotton, wheat and oats.
More corn acres
Indeed, as U.S. corn-based ethanol production ballooned from 848 million gallons in 1990 to 14.8 billion gallons in 2015, American corn acres soared from 74.5 million to this year’s anticipated 93 million-plus.
Across those same 25 years, however, all wheat acres have plunged from 77.3 million to 2016’s forecasted 49.6 million, and oats have virtually disappeared, dropping from 10.4 million acres in 1990 to just 2.7 million this year. Cotton has been affected, too, with acreage swinging from 12.4 million in 1990, to 15.5 million in 2000, to an anticipated 9.5 million acres in 2016. Ethanol policy, also, changed between 1990 and 2016.
Mandating ethanol
Federal and a patchwork of state tax breaks, as well as tariff protection against imports, were traded for an escalating, mandated Renewable Fuel Standard. The number of ethanol plants nationwide, according to the Renewable Fuels Association, has gone straight up, from a handful in 1980 to 214 last year. And, those plants, claims the RFA, “supported 85,967 direct jobs” — (whatever that means) — “as well as 271,440 indirect and induced jobs.”
All these ethanol-related numbers — with the exception of the RFA’s squishy “jobs” numbers — are inarguable.
Ethanol’s impact
Also inarguable is ethanol’s dominating role in U.S. ag production. No matter where you farm or what you farm, ethanol now drives many of your farm’s choices and decisions.
Where would the nation, its farmers, livestock growers, and rural America be today had ethanol not been given such a protected, oversized role in U.S. farm and energy policy during the last 25 years?
Low profits
More to the point, as farmers, their bankers and input suppliers stare blankly at another year of record-shattering corn production and bleak corn prices, what role should it play in the future?
Those are fair questions and, sooner or later, someone will ask them.
As such, maybe we in agriculture should do the asking since we’re going to be the ones needing the answers.
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We grew 84.6 million acres of corn in 1976 before ethanol and high fructose corn syrup and 88.9 million acres last year in 2015. We grew more corn acres compared to recent years in the 1920s, 1930s, and 1940s with the greatest number in 1932 at over 113 million acres. http://www.ers.usda.gov/media/521667/corndatatable.htm
Ethanol did not divert acres away from wheat, cotton, or oats, soybeans did. Before anyone sheds tears for the lower wheat acres, understand that the stocks to use ratio for wheat in the US is 49.3% compared to 37.3% last year and 24.2% the year before, we have too much wheat and the price reflects that. Cotton you ask? Well, the stocks to use in the US is 27.5% up from 16.7% two years ago, but the world ratio is a whopping 94.6%, almost an entire year’s supply on hand, no tears needed. https://www.cmegroup.com/…/files/ht_charts/snd_cbt.pdf
The vast amount of corn is grown for cattle feed, nothing more. Corn ethanol uses a part of the corn kernel that cattle can’t digest well and normally waste in manure on the ground(the carbohydrates) while leaving the feed in tact(the proteins, fats, and minerals). The fermented corn becomes a more digestable, a more efficient, and a much more concentrated feed called distillers grain(DDGS). If we all became vegetarians overnight, corn ethanol would disappear overnight because it would not work economically. On the other hand, if corn ethanol disappeared overnight, we would still grow about the same amount of corn we always have. Just let that sink in oh ethanol detractors.
It is very fashionable to bash ethanol especially when the API spends over a billion dollars in propaganda overtly and covertly against it. The dirty secret is the oil companies like ethanol at 10% for octane boost because there exists nothing cheaper, cleaner, more nontoxic, or concentrated to raise octane. Toxic and carcinogenic BTX(benzene, toluene, & xylene) is the alternative(more expensive) octane booster and oil companies make more money selling it for other uses and buying and/or making ethanol to raise octane. What they do fear is for ethanol to be sold in blends >10% or even straight ethanol as is done in Brazil, Sweden, and other countries.
Federal subsidies and import tariffs ended in 2011 for corn ethanol. There still exists a mandate for use which coincidentally(or not?) is about at 10% of gasoline use in the US. The mandates first started in 2005 and when it was apparent that oil company demand was far greater for ethanol that what the mandates required, it exposed them as irrelevant. The politicians then saw fit to greatly raised them in 2007 to save face and to seem relevant. Even then, oil company demand for ethanol surpassed those more years than not albeit slowing down quickly as their desired 10% blend approached. Oil companies can extract more gasoline from a barrel of oil at sub grade 84 octane and pipeline it around that way and splash blend 10% ethanol to bring it to standard grade 87 than if they further refined the oil to 87 octane. Ethanol therefore makes our gasoline less expensive in more than one way. The CBO had a study done on what would happen if the corn ethanol mandates were ended and it came to the conclusion that ethanol use would remain unchanged. I believe the mandates are nothing more than a wedge issue that politicians both for and against ethanol employ on their constituents when the reality is that ethanol use would remain the same with or without the mandates.
When you slip your credit card into the fuel pump remember that with ethanol, more of your money goes to American workers and American businesses who pay American taxes who put it in American banks and buy goods and services(like newspapers) that you and your fellow Americans produce. With straight gasoline, more money goes to Arab sheiks and transnational oil companies who put it in Swiss bank accounts and pay little if any in tax.