Are you kidding me; are you really going to plant 93 million acres of corn? Well, that is what a sampling of US farmers told the USDA at the beginning of March. That number, which was contained in the Planting Intentions report released last week, shocked the market and most analysts. With corn prices already below the cost of production, why farmers would choose to grow more corn is a head-scratcher. But is the number accurate?
Several industry observers that I spoke with stopped short of calling the number inaccurate, but did the eye roll thing when discussing the big jump in acreage. Most of the increase came in western states where wheat acreage is down. In addition, lots of land that did not produce a crop in Illinois and Indiana last year because of flooding will be back in production this year. Even if the intentions number is a bit overstated, barring a weather event, we are going to have a lot more corn to deal with.
Purdue economist Chris Hurt estimates that by the end of this year we will have about 2 billion bushels of corn sitting in storage with no place to go. This will weigh on the market and likely keep corn prices under $3.50, almost a $1 a bushel under the cost of production. So, what are we going to do with all this corn?
We (the U.S.) have two options. We store it on the stockpile and let the market slowly, over several years, whittle away at the surplus. Meanwhile, farmers will continue to farm using up more and more of their savings and equity farming at a loss waiting for some disaster to rally the market and rescue them. The second option would reduce the surplus quicker, provide jobs, economic activity, long term market stability, and not cost taxpayers a dime in funding farm safety net programs. All it requires is for our current and future elected officials to move agriculture from the bottom of their priority list and raise it to a place above organized labor and big oil.
Two simple policy changes would stimulate demand for corn and, in a very short period of time, would increase demand, lower the surplus, and boost prices. First, the Obama administration would need to increase the amount of ethanol that that gets blended into our fuel supply. Lowering barriers to E-15 would require very little effort or infrastructure changes. Consumers would have to make no major adjustments to their fueling habits. Moving pumps from E-10 to E-15 is already starting to happen, but could happen much faster if the EPA would stop letting Big Oil write the rules.
The other policy action that would shrink our corn surplus would be for Congress to approve the Trans Pacific Partnership (TPP) trade agreement. This mega-trade deal would stimulate demand for US agricultural products from the rich and growing Asian market. It would make US farm products price-competitive in this part of the world and would also result in thousands of new jobs here in the US. While it is not a perfect deal, the benefits to the U.S. far outweigh the detriments.
Yet, many current elected officials and most of those who want to get elected this fall are not championing these changes. So when they come campaigning to your town and tell you they really support the American farmer, ask them why they won’t do what would really help the U.S. producer. Meanwhile, as you pull your planter across the field this spring planting row after row of corn, be thinking about what you can do to help increase the demand for your product.
By Gary Truitt