Farmers had good ‘08, but ‘09 will be challenge

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March 2, 2009

By Patricia Morrison The Washington Times-Herald Mon Mar 02, 2009, 01:01 PM EST

Farmers went through floods in 2008, but managed to pull off a good season, with high corn prices. Things aren’t looking that good this year.

“They (local farmers) had a good year in 2008,” Perdue Feed Plant Manager Jim Truelove said recently. “(The year) 2009 is going to be a real challenge with the prices coming down.”

For Perdue, one of the largest purchasers of corn in the area, the decrease in price has helped, but the company bought 50 percent of its corn during the 2008 harvest and another 25 percent since. They are currently paying half the price they paid in June and July, Truelove said.

Perdue doesn’t seem to be affected by the economic slowdown, as their sales have been steady. “We seem to be selling the product,” Truelove said. “It’s (poultry) a competitive meat.”

Truelove said farmers that sold their corn on contract last summer reaped the profit, while those selling now are seeing a much lower price.

Ethanol producers are finally seeing an increase in their profits due to the decrease in the cost of corn. A large corn harvest earlier this year tumbled the Chicago price of corn below $3 per bushel, giving the ethanol industry a reason to feel optimistic.

The reduction in corn prices should be enough to push ethanol plants back “into the black.” When cash corn prices reached almost $5 per bushel, ethanol production dropped as low as 39,000 barrels per day. The actual ethanol fuel price did not see a similar drop due to the increase in demand for ethanol for the oxygenated fuel season, but models show that plant profits were still stymied due to the manufacturing, marketing, and administrative expenses of plant operations. Profits are seen when feedstock costs are significantly lower than fixed costs.

Co-products such as distillers dried grains with solubles and corn gluten feed, meal and oil did not see increases in their prices like corn did earlier in the year, adding to the profitability squeeze for ethanol producers.

An increase in the cost of these products would keep the cost of cash corn prices from skyrocketing, helping producers maintain ethanol profitability. Carroll Keim, an agri-business analyst and member of the Oxy-Fuel News Advisory Board, suggested that the ethanol industry explore how the industry can promote the use of these co-products.

“Producers need to investigate further the options for increasing the markets and value of ethanol co- products. There is some work being done on projects such as distillers dried grains for human consumption, but more is still needed,” Keim said.

The outlook for the future of ethanol is positive because corn prices are expected to remain below $3 per bushel. Even though co-product pricing remains a question for now, the industry still might see an increase in the demand for ethanol from oil companies. If prices remain low, ethanol blending for octane enhancement will be revisited. This demand, along with stable corn prices, will surely continue to keep ethanol production profitable.

nJae Hur with Bloomberg.net contributed to this story.

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