Ethanol is changing everything in American agriculture, economist Richard Brock tells BEEF. “I've never seen such volatility. It's unbelievable,” says the publisher of The Brock Report (www.brockreport.com).
A week of dry weather and moisture-sapping winds in early May caught spring planting up to normal in the Corn Belt. But what's concerning is the effect of the cold, wet weather that delayed planting in some areas and forced replanting in others, likely affecting eventual overall yield, he says.
“We need above-trendline yield in corn (152 bu./acre) from this year's crop. If we don't get it, it will cause serious trouble. Any level of weather at all in the next two months, and the corn market will explode,” he says.
Spring conditions leave him skeptical that a trendline yield is feasible. Adding to his concern is that 89 million acres is now the lowered estimate of planted corn acres for 2007, down from the 90.5 million cited in USDA's March 30 Prospective Plantings report.
“Draw a line through central Kentucky to Missouri, and that's the corn crop frozen out and killed this spring. They've had to replant, and some of that didn't go back to corn. We've lost at least 1 million acres in the South due to the freeze. The concern is now acreage and weather,” he says.
The livestock industries are generally existing hand-to-mouth at this point, with little grain usage booked ahead. If weather causes buyers to scramble, an incredible bull market lies ahead, Brock says.
One concern is where the burgeoning demand for corn will be sourced. With a half-dozen ethanol plants currently under construction in California, he wonders how the grain and the transportation requirements can be met.
“Sixty-three percent of this year's corn crop in Iowa will go into ethanol production, and all of next year's crop. There won't be enough corn in Nebraska to feed the Nebraska industry as well as the California ethanol and livestock industries,” he says.
A 155-bu./acre corn crop could meet the coming demands, but that level has been out of reach the past three years, Brock points out. And while cellulosic ethanol has been touted as providing future relief in the biofuels arena, Brock says practical cellulosic ethanol production is no closer than five years. “And that's really just a number pulled out of the hat,” he says.
While corn went into the high $3 in the cash market, few growers benefited to the full extent because of early selling, Brock says. It is landowners who have benefited the most from the ethanol juggernaut — with cash rents having doubled since January.
In fact, he expects the grain boom to accelerate consolidation as owners of smaller farms who are pondering retirement pencil out the profit and decide to rent or sell out. “We're rapidly moving toward the 3,000- to 5,000-acre units in grain production as the average,” he says.
In addition, Brock says more outside money is coming into U.S. agriculture than ever before. He points to an investor group led by financier George Soros that is currently building a half-dozen, 5,000-head dairies across the country.
In addition, John Deere stock has hit a four- to five-year high, though equipment sales aren't warranting the move. “It's all anticipation at this point,” driven by the booming grain market, Brock says.