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Low supplies and high prices for corn and soybeans are forcing ethanol and biodiesel plants to reduce production or shut down completely.
A drought takes no prisoners.
That’s becoming more and more evident as the heavy hand of heat and drought tightens its grip on the nation’s breadbasket. Ironically, for cattlemen at least, one of the victims of the widening disaster is biofuels production, which is finding high prices and low supplies of its feedstocks too much to bear.
In fact, almost two-thirds of bankers in a sample of small, rural communities report a cutback or closing of local ethanol/biodiesel plants due to Mother Nature’s scorched earth policy.
That’s according to a monthly survey of rural bankers in a 10-state area conducted by Ernie Goss, the Jack A. MacAllister chair in regional economics at Creighton University in Omaha, NE. From his monthly survey, Goss calculates a Rural Mainstreet Index (RMI), which gives a real-time indication of the economic health of ag- and energy-dependent rural communities, with 50.0 representing growth neutral.
For June, the RMI declined to 47.9, its lowest level since September 2010 and down from last month’s 56.7. Drought is the driver, Goss says.
Bank CEOs were asked about the impact of the drought on ethanol/biodiesel production. Of bankers with plants in their area, 64.3% reported negative impacts with 21.4% indicating plant closures and 42.9% detailing cutback in operations. Only 35.7% reported no impact from the drought.
“The lack of available crops and higher prices for corn and soybeans are having significant and negative impacts on ethanol and biodiesel producers in the area,” Goss says.
Cattlemen know something about that. The impacts of the drought are particularly negative for livestock producers. Korey Schow, CEO of the Bank of Keystone in Keystone, NE, says, “Persistent hot and dry conditions are causing cow-calf producers to sell a portion of their herd due to lack of pasture.”
According to Goss, “The drought is putting a dent into the economies of the ag-dependent areas of the 10-state area. Just as the region has benefited mightily from very healthy farm income over the past few years, we are now detecting warning signals of a significant economic reversal for rural areas.”
Which means bankers and their clients are feeling the heat. “The drought is severe in west-central Illinois. Conditions are like those in Steinbeck's “Grapes of Wrath,” but no one today wants to move to California,” says Jim Ashworth, president of Carlinville National Bank in Carlinville, IL.
There is concern even in areas not suffering from drought. Pete Haddeland, CEO of First National Bank in Mahnomen, MN, expressed the view of the minority of areas with solid crops, “Our crops look good up here, but we still need rain.”