FFSC – Day Two (first session)
The annual conference of the Farm Financial Standards Council just got started this morning. The first speaker of the day was Dan Looker, business editor of Successful Farming and his discussion was on Ag Megatrends.
The first Ag Megatrend dealt with Ethanol. Even though the blender credit is most likely being phased out or allowed to expire at the end of the year, the biggest reason for the continued demand of corn for Ethanol is the mandate for 15 billion gallons of Ethanol. Ethanol is now the biggest market for corn, just passing up feed usage. We are now at the blend wall, i.e. the industry is producing about 13 billion gallons of Ethanol and the total gas gallons were only 137 billion gallons. With a 10% blend, only about 13.7 billion gallons could be used. The E15 blend could soak up more Ethanol. An escape valve is exporting our Ethanol to Brazil and other nations. Brazil’s economy is growing and more people are able to afford cars that use Ethanol and Brazil is exporting sugar based Ethanol to the US since it meets the criteria for advanced biofuel that corn Ethanol does not currently meet. By 2015, the mandate is for 15 gallons of Ethanol.
The Ag Committee in Congress has had a rapid changeover. There are 7 new Democratic and 16 new Republican members and many of these members are no longer from “true” farm districts. Many of these members need to be educated about agriculture. The ag committee faces being billion dollars short plus the uncertainty of the Debt Ceiling super committee to cut spending which will affect Ag, but nobody knows by how much and where. The government current subsidizes about 80% of enterprise crop insurance and this may be an area that gets cut in the next farm bill. Of the current annual $80 billion farm program payments, only about $6 billion is for commodity programs and about $5 billion for conservation programs.
Another mega trends is current record corn prices. USDA is showing a range of $5.50 to $6.50 for this year’s crop. Ending stocks are still projected under the bare minimum cushion of 1 billion bushels. This year’s exports are at a 9 year low, but still almost 2 billion bushels and no excess supply to ship anyway.
The Chinese imports are still small, however, it is still many multiples of last year. If the supply is there, China may import up to 400 million bushels of corn this year.
China will import about 58 million metric tons of soybeans this year and about 1/2 will come from the US.
We are facing growing global competitors. The former Soviet Union is now starting to produce more corn. They now produce more than Argentina and other noted corn exporters. Romania has excellent farm land that can produce corn at the same rate of our corn belt and just needs to get their infrastructure in place.
The farming outlook is still optimistic according to Dan.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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