Ethanol jacking up fertilizer prices

Ethanolics never tire of telling us that the current ethanol mandate, President Bush’s 20/10 program (requiring 20% or 35 billion gallons of the nation’s motor fuel to come from corn and other plant materials by 2017), and kindred regulatory initiatives are “good for farmers.” In reality, such policies are wealth-transfer schemes—zero-sum games in which one farmer’s gain is another’s loss. Once again, big daddy government robs Peter to pay Paul.

Ethanol jacking up fertilizer prices

By Adam Willson, AP, Bucks County Courier Times, April 15, 2007

READING, Pa. – Alternative fuels are helping to turn cornfields into golden cash cows for many American farmers, but for Pennsylvania agriculture it’s causing bushels-full of trouble, industry experts say.

With more than 90 million acres of farmland devoted to the profit-rich crop nationwide, the rush to grow corn for ethanol is squeezing Pennsylvania’s agricultural life blood, Dennis C. Wolff, Pennsylvania secretary of agriculture, said.

Instead of enjoying profits from record corn prices, the state’s predominantly dairy and livestock farmers are being hit with huge increases in production costs and relatively stagnant product payments, he said.

Wolff said there is a cruel irony in agriculture booming while also facing some of its toughest challenges in decades.

“With $4-per-bushel prices, crop farmers are jumping on the corn bandwagon,” he said. “But for every action there is a reaction.”

The reaction to the sudden addition of 12 million new acres of nutrient-hungry corn has been to boost prices for fertilizer, feed and soybeans—vital products for all dairy and livestock farmers.

In Pennsylvania, corn slated for ethanol production covers only 1.4 million acres of an agricultural landscape dominated by dairy and livestock farming. In Berks County, only 50,000 acres are set aside for grain commodity, but that also is a tiny fraction of an overall farming picture dominated by milk, beef and poultry agriculture.

Statewide, including Berks, 65 percent of farmers’ revenue comes from corn-essential products such as milk, eggs, poultry, beef and pork, which means that what crop farmers are selling at record prices, our farmers are buying, Wolff said.

“Livestock farmers are looking at substantially higher costs,” he said. “But there has been no real upswing in product prices to offset that.”

Corn demands huge quantities of nitrogen and other nutrients, which has helped to force up fertilizer prices by more than $150 a ton because, even without this year’s increased acreage, 45 percent of the country’s supply gets spread on cornfields, said Jeff Schneck, sales manager for Cumru Township-based Timac USA.

Timac is a subsidiary of the France-based Roullier Group, which specializes in producing fertilizers and other agricultural supplies for the world market.

Schneck said the big surge in fertilizer prices began in December.

Fertilizer already has been on a three-year price increase because nitrogen, one of its primary ingredients, has been skyrocketing with the rising cost of natural gas.

Almost all nitrogen supplies must be imported because there are no longer any domestic production plants left, Schneck said.

“Where natural gas goes, fertilizer goes,” Schneck said. “Where fertilizer goes, corn goes. And where corn goes, animal production goes.”

The outlook for local farming could become even bleaker in years to come as more ethanol production plants go online, causing even more corn to be planted at a time when corn acreage in the United States is already the biggest it has been in decades.

Wolff said crop farmers are making room for additional corn by removing millions of acres of soybean production, which has pushed soybean meal , another key product for livestock feed , above $200 a ton due to demand for a vastly reduced product.

Hereford Township dairy farmer Keith Masemore said he’s not exactly panicking, but there’s no doubt that he and many other local farmers are frustrated and worried.

“When the economy booms, you’d think we’d boom, too, but it just doesn’t happen,” said Masemore, who also is the president of the Berks County Farm Bureau.

“Things are tight, and a lot of guys are hoping for a big hike in milk prices to give them a chance of making it,” he said. “But we are at the mercy of the market. If anyone was depressed before this, they’re going to be even more depressed now.”

Schneck said the big push toward ethanol production drained supplies of the three key fertilizer nutrients , nitrogen, phosphates and potash , causing price increases of 130 percent, 175 percent and 48 percent, respectively.

Barry Good, a Centre Township dairy and chicken farmer, said feed prices are getting out of hand and corn has nutrients that can’t be replaced by other, cheaper, grains.

“You can’t replace it pound for pound,” he said.

It’s a vicious circle that adds up to a Holstein-sized headache for many Pennsylvania farmers because livestock feed makes up at least 40 percent of the cost to produce milk, which had a revenue return of only $1 a gallon last year and about $1.29 a gallon so far this year, Wolff said.

“When so much of the expense line is consumed by one item, any price fluctuation is going to have a tremendous (financial) impact,” he said.

Masemore has tried to offset losses at his 119-acre farm by selling some of his fields to housing developers and cutting his dairy herd from 90 cattle to 50.

“We (dairy farmers) are hurting and the price of milk isn’t going up,” he said. “With the ethanol issue, we really don’t know what will happen in the next couple of years.”

Mena Hautau of the Berks County Cooperative Extension said high corn prices could help local grain farmers as speculation over corn-based ethanol drives up the price of corn futures.

But Michael Braucher, a Centre Township grain farmer who grows 500 acres of corn, said he would rather wait until the corn market stabilizes before rushing in and planting significantly more of the crop.

A glut of corn could flood the market and drive down prices. Also, a dry summer could reduce yields and profits, he said.

“I’d rather not see corn sell for over $4,” Braucher said. “I’d rather see sustainable prices for all farmers rather than temporary great gains.”