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Higher farm prices bring new uncertainties

August 29, 2008

In the words of that wise old sage, Kermit the Frog, who once lived on the banks of Deer Creek near Leland, Miss., “It isn’t easy being green.” For years, farmers were told to become more environmentally friendly by adopting cleaner-burning, more energy-efficient fuels along with soil- and water-saving production practices.

Farmers began to plant no-till and spray fewer pesticides and to grow more corn and soybeans for cleaner-burning, more energy-efficient ethanol and biodiesel. And what did they receive for their trouble? After an all too brief “honeymoon” period for renewable fuels, many believe the urban world has turned on them.

How did farmers go from being heroes to bad guys in such a short time period? Part of it is due to the oil industry seeking to divert attention from the record profits of companies like Exxon-Mobil. But it’s also because of the shifting nature of the U.S. agricultural economy.

At one time, farmers and livestock producers had a pretty sweet deal. Farmers sold corn to livestock producers for $2 a bushel. Some years growers sold that $2 corn or $5 soybeans for less than the cost of production, but made up the difference with government payments or higher yields or went out of business.

As oil prices and ethanol use began to rise, the arrangement changed. Livestock producers had to compete with ethanol and biodiesel plants for grain. Corn prices climbed to $7 per bushel before commodity speculators began to realize the sky wasn’t falling when it came to the 2008 crops.

During the price run-up, some unfortunate actions occurred, such as Texas Gov. Rick Perry’s request for a waiver of the renewable fuels standard that requires the country to produce and consume 7.5 billion gallons of ethanol by 2012.

Perry’s request, which some have tried to link to a gift of $100,000 to the Republican Governors Association, pitted livestock groups against the National Corn Growers Association, both of which lobbied EPA on the issue. (EPA Administrator Steven Johnson denied Perry’s request on Aug. 7.)

While cattle and hog feeders — and the Grocery Manufacturers Association — tried to paint ethanol as the new evil, the renewable fuels lobby fought back with studies showing ethanol was actually helping reduce gasoline prices by an estimated 15 percent.

When USDA released its August crop report estimating that the 2008 corn harvest would be the second largest on record (behind 2007), the renewable fuels industry breathed a collective sigh of relief, saying the 12.3-billion-bushel crop would be enough to meet domestic and export needs.

Another reason farmers have been getting dumped on over ethanol may be carryover from the farm bill. Although farm-state congressmen have been doing their best to characterize it as a food and energy bill, the legislation is still being tagged as a “$300-billion gift to farmers” by commentators from all parts of the media spectrum.

As Kermit might say, “Get used to it. It all comes with the territory.”