With New Ethanol Price Volatility, Farmers are at a Loss
When the only factor that determined if farms lived or died was the price of food, farm income was rather boringly steady. Now that biofuels have given agriculture a value greater than staple food crops, farmers have seen some huge rewards. But with those rewards have come greatly increased risks — risks that farmers are finding out the hard way right now.
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According to the University of Illinois at Urbana-Champaign, the ethanol boom helped drive two years of record profits for farmers, but in these last two years, grain farmers have become increasingly disengaged from the stable food markets of the past, and placed their bets on the biofuel market.
“We’re just experiencing the full brunt of this new source of volatility,” said Scott Irwin, a professor of agricultural and consumer economics. “When food prices were the main trigger, recessionary impacts were much less direct and much more gradual. Now, there’s this new connection through energy costs that immediately gets translated to agriculture.”
Last summer, corn prices were at $8 a bushel on the futures markets due to rising gas prices. But as demand for fuel has fallen with a weakening economy, speculators have pulled out of the commodities markets and corn prices have plumetted. Currently corn prices are at $4 a bushel, half the value of their summer high. Irwin predicts corn prices will stay that low until “the economy rebounds from a recession that could be the nation’s deepest since World War II.”
Even so, at $4 a bushel that’s nearly 50% higher than it was from 1973 to 2006 when the average price was $2.42 a bushel.
I guess the conclusion to be drawn from this is that, even if the biofuels market has drastically increased the volatility of farm income, the prices farmers are seeing today, even at their lowest, are much higher than they have been at any point in modern history — due mostly biofuels.
Source: University of Illinois News Bureau
Image Credit: Nicholas_T’s Flickr photostream under a Creative Commons License
Not being a farmer (although I did live on a farm in Tennessee until I left high school), I can’t sit at the same table as most of the posters here. But as an outside observer, I have a couple questions that pertain more to the future than the present.
How will a perfected cellulosic process (on a massive scale) change this equation?
Could this technology have an impact on how many farmers choose to raise food crops, as opposed to fuel crops?
I know the questions do nothing to address the current situation, but it seems to me that we, as a nation, are barreling down the road while looking only at the pavement immediately in front of us, instead of looking further ahead down the road. That’s a recipe for disaster, but it’s the recipe that got us where we are today.
I ask these questions out of sympathy for the farmers, who have been manipulated by a greedy marketplace into a very difficult situation, and are hobbled by an increasingly out of touch government.
I strongly believe that cellulosic technology will open a broad spectrum of cash crops better suited for ethanol than corn. I’m sure some farmers out there agree.
I don’t pretend to understand farm subsidies, so please pardon my naiviety on the subject. But common sense tells me that money invested in first, the new technology (cellulosic production), and then in machinery (planters, harvesters, etc.) and a supporting infrastructure (transportation and distribution of crop and product) would be money better spent for the future of farming.
I have been told that many farmers are paid to NOT plant as much of a crop as they could potentially plant. If that is true, then it makes this whole food vs. fuel arguement stupid and irrelavent.
If ethanol plants or starving Ethernopians need more corn, then plant it and tell the government to give the money to the tree huggers trying to save the Farting Tree Bat. (It makes as much sense!)
But I guess that’s the brilliance of our government.
As usual, I agree with Mark_in_Texas. Until we step up as a nation of inventors and problem solvers, instead of a nation of politically frighten hand wringers, then we will be at the mercy of the likes of Pootie and Ahmadinnerjacket.
The messiah-elect is in for some rude awakenings. Let’s hope he can do more than just vote “Present”.