Ag economist: Farmers facing 'Embarrassment of Riches'

WORTHINGTON - World-renowned agricultural economist Bill Tierney captivated a crowd of crop producers Tuesday afternoon in Worthington as he offered his projections on corn and soybean production numbers and prices for 2007 and beyond.

Tierney, a retired USDA grains economist, now serves as executive vice president of John Stewart & Associates in Washington, D.C. His presentation focused primarily on U.S. corn production, how increased acreage may affect pricing and the role the ethanol industry will have in both pricing and production.

With $4 per bushel corn forecasted by the end of this year, and the USDA acreage report to be released on Friday, discussion abounds on the number of acres that will be planted to corn.

“What if Friday’s report shows you guys are going to plant 12 million more acres (of corn) in 2007?” Tierney asked. “And what if you get the same kind of weather as in 2004 (when U.S. corn farmers hauled in record corn yields averaging 172 bushels/acre).”

In a typical year, Tierney said approximately 91 percent to 92 percent of the total corn acreage is harvested. The rest is fed as silage. With dairy numbers not anticipated to increase, producers could see 94 percent to 95 percent of their total corn crop harvested.

More important than the percentage of corn harvested is the yield, and that variable depends on weather conditions. Tierney said forecasts are for a La Nina this year, which in the Midwest means hotter and drier than average conditions.

If corn growers experience decent conditions at planting, tassling and harvest, the bottom line is farmers should start looking to construct more storage space now for their grain, and expect an abundance of corn piles following harvest, said Tierney.

Tierney said Archer-Daniels-Midland is predicting an additional 841,000 acres will be planted to corn in Minnesota this year, an 11.5 percent increase over 2006 acreage. Nationwide, farmers are predicted to plant 10 million more acres to corn this year than a year ago.

“Whatever number USDA comes out with on Friday, that’s a darn good number to use,” said Tierney. “Take that to the bank and use it in planning acreage.”

Supply and demand

Livestock and ethanol production continues to drive the price of corn, and Tierney said those drivers are likely to continue.

“We’re still in the expansion phase in the swine industry,” he said, adding that poultry production numbers are beginning to show signs of leveling off. He didn’t have enough information to comment on dairy or cattle on feed numbers.

Increased corn prices have not impacted the livestock industry as much as it might have a decade ago, said Tierney, adding that livestock production today is more vertically integrated. As such, the industry can pass along its price increases to the consumer at a faster pace than it used to.

“That’s good news for corn producers,” said Tierney. “In the past, (livestock producers) reduced supplies when feed costs went up.”

Tierney said price forecasts for July to December corn pinpoints a high of $4.50 per bushel and a low of $3.50 per bushel. That’s based on a nationwide corn crop of 88 million acres planted. If more than 88 million acres are planted in corn, Tierney said the low would drop to approximately $3.25 per bushel.

“I would think that next fall, if this scenario plays out, you’re going to see the widest basis ever,” said Tierney. “Here we are, trying to be good Americans and responding to the president’s call to reduce dependence on foreign oil and here you are getting $2.25 to $2.50 per bushel (by the end of 2007) and you’re thinking, ‘Im going back to soybeans.’ Remember, it took $4 corn for you guys to decide whatever you’re going to decide on Friday.”

No easy answer

With spring rains this week preparing the soil for planting season, farmers may still be wavering on how much of their acreage will be planted in corn, and how much will go into soybean production.

Predictions of an abundant corn harvest, combined with a potential price drop of $1 per bushel, may have farmers opting to stay with their traditional crop rotation.

Tierney said soybean demand has grown 70 percent in the last 11 years, compared to a 40 percent increase in cotton demand, 37 percent increase in corn demand and 11 percent increase for both wheat and rice demand. Both China and India are helping to drive the demand for soybeans, along with the biofuels industry in the European Union.

If U.S. farmers cut 10 million acres out of soybean production by 2010, Brazilian soybean farmers would have to, at the same time, increase acreage by 27 million.

“We have a problem with the global balance sheet for total acres needed,” said Tierney, adding that Brazil is basically the only country that has the land to expand soybean acres. Their willingness to expand soybean acreage, however, is a concern -- 2006 was the second year in a row of negative profitability for Brazilian soybean farmers. Weather issues, soybean rust and the value of the Real all factor into the lack of profitability, Tierney said.

“We think that next fall, in order to get Brazilian farmers to stop reducing soybean acreage – we’re going to have to increase the amount of money they make. We’d have to pay them $9.50 per bushel,” said Tierney.

When one farmer in the audience said he should be getting $9.50 per bushel for his soybeans, Tierney responded, “an embarrass