Good times ahead seen for corn farmers
By Russ Oechslin, Journal correspondent | Posted: Wednesday, February 21, 2007
SPENCER, Iowa -- Ron Egertsen has been farming for 33 years. In that time the Laurens, Iowa, man said, his occupation "has been in a death spiral."
Now he sees light. Or air. Or the spiral stopping.
"Suddenly we have some air under our wings," he said Tuesday, after listening to CommStock Investments' David Kruse and Katie Hadenfeldt of the Union Pacific Railroad at the 23rd annual Northwest Iowa Ag Outlook at the Clay County Regional Events Center in Spencer.
Kruse, the broker, columnist and radio commentator regarded as "The Mark Twain of the Plains," predicted significant increases in corn and land prices for Iowa farmers.
Noting corn demand approaching 13 billion bushels for this crop season, compared to 9 billion a decade ago, Kruse said growth is coming in the food, seed and industrial areas. That includes ethanol production.
But, he warned, this growth might occur at the expense of feed and exports.
With 63 ethanol plants online or planned in Iowa and 11 more in nearby areas of adjacent states, Kruse said capacity of those plants already requires 133 percent of the state's total 2006 corn crop.
To fill this demand, an increase in production must come from yield increases and a surge in acres planted. Kruse suggested a corn-corn-beans rotation instead of the more common corn-beans-corn-beans rotation. He showed figures that would take the state's corn acreage from 12.38 million acres to 15.22 million, while reducing soybeans from 10.45 million acres to 7.61 million.
Ethanol production, he said, will be 9.5 billion gallons by 2008-09, and will become 15 billion gallons by 2012, using 5 billion bushels of corn.
Not long ago, Kruse commented, corn prices above $3 per bushel meant profits for corn growers. Prices below that level generated profits for ethanol plants. Today, he noted, that price level is up to $4.05.
All the growth in the industry has created "a big jump in the price of top quality farmland in the last two months," Kruse said. "And cash rents are almost certain to increase sharply," this year as well.
"The value of all quality of land is likely to increase," he said. "And pressure on cropland is expected to bring pasture and hay land to row crops."
Railroad expansion detailed
Following Kruse, Hadenfeldt, senior business manager for Bio-Fuels with the Union Pacific Railroad, outlined her company's $100-million expansion in the area, which includes $70 million spent in Iowa since 2004.
"This is a long-term commitment," she said.
In eight years the UP has seen a 515 percent growth rate in the ethanol area. The railroad's investment is an effort to make this expanding business efficient, largely through use of unit-trains of 75 or more cars of ethanol and/or distillers' dry grain from and to the same locations, with no car switching en route.
While the UP trackage is mostly west of the Mississippi River, it does serve Chicago, where many grain trains are switched to other railroads such as the CSX and Norfolk & Southern, for destinations on the East Coast. Those facilities are currently located in New York and New Jersey, with a UP yard in Dallas, Texas. New destination yards are planned for California, Maryland, Rhode Island and Florida, Hadenfeldt said.
"If California switches from a 5.7 percent ethanol blend to 10 percent, that would double the volume into California" and provide a huge demand, the business manager explained.
In addition to the bio-fuels business, which Hadenfeldt noted is the largest growth market the UP has seen in 10 years, Mexico is developing as both an import and export market. While U.S. farmers are shipping feed grains south, we are importing boxcar loads of beer from south of the border.
One problem, Hadenfeldt explained, was that sending hopper cars and tank cars to the East doesn't allow for many back-hauls that might help keep shipping rates down. Right now there is a near two-year delay for companies needing new tank cars.
Now he sees light. Or air. Or the spiral stopping.
"Suddenly we have some air under our wings," he said Tuesday, after listening to CommStock Investments' David Kruse and Katie Hadenfeldt of the Union Pacific Railroad at the 23rd annual Northwest Iowa Ag Outlook at the Clay County Regional Events Center in Spencer.
Kruse, the broker, columnist and radio commentator regarded as "The Mark Twain of the Plains," predicted significant increases in corn and land prices for Iowa farmers.
Noting corn demand approaching 13 billion bushels for this crop season, compared to 9 billion a decade ago, Kruse said growth is coming in the food, seed and industrial areas. That includes ethanol production.
But, he warned, this growth might occur at the expense of feed and exports.
With 63 ethanol plants online or planned in Iowa and 11 more in nearby areas of adjacent states, Kruse said capacity of those plants already requires 133 percent of the state's total 2006 corn crop.
To fill this demand, an increase in production must come from yield increases and a surge in acres planted. Kruse suggested a corn-corn-beans rotation instead of the more common corn-beans-corn-beans rotation. He showed figures that would take the state's corn acreage from 12.38 million acres to 15.22 million, while reducing soybeans from 10.45 million acres to 7.61 million.
Ethanol production, he said, will be 9.5 billion gallons by 2008-09, and will become 15 billion gallons by 2012, using 5 billion bushels of corn.
Not long ago, Kruse commented, corn prices above $3 per bushel meant profits for corn growers. Prices below that level generated profits for ethanol plants. Today, he noted, that price level is up to $4.05.
All the growth in the industry has created "a big jump in the price of top quality farmland in the last two months," Kruse said. "And cash rents are almost certain to increase sharply," this year as well.
"The value of all quality of land is likely to increase," he said. "And pressure on cropland is expected to bring pasture and hay land to row crops."
Railroad expansion detailed
Following Kruse, Hadenfeldt, senior business manager for Bio-Fuels with the Union Pacific Railroad, outlined her company's $100-million expansion in the area, which includes $70 million spent in Iowa since 2004.
"This is a long-term commitment," she said.
In eight years the UP has seen a 515 percent growth rate in the ethanol area. The railroad's investment is an effort to make this expanding business efficient, largely through use of unit-trains of 75 or more cars of ethanol and/or distillers' dry grain from and to the same locations, with no car switching en route.
While the UP trackage is mostly west of the Mississippi River, it does serve Chicago, where many grain trains are switched to other railroads such as the CSX and Norfolk & Southern, for destinations on the East Coast. Those facilities are currently located in New York and New Jersey, with a UP yard in Dallas, Texas. New destination yards are planned for California, Maryland, Rhode Island and Florida, Hadenfeldt said.
"If California switches from a 5.7 percent ethanol blend to 10 percent, that would double the volume into California" and provide a huge demand, the business manager explained.
In addition to the bio-fuels business, which Hadenfeldt noted is the largest growth market the UP has seen in 10 years, Mexico is developing as both an import and export market. While U.S. farmers are shipping feed grains south, we are importing boxcar loads of beer from south of the border.
One problem, Hadenfeldt explained, was that sending hopper cars and tank cars to the East doesn't allow for many back-hauls that might help keep shipping rates down. Right now there is a near two-year delay for companies needing new tank cars.
Story Comments
Read More and Post Comments 0 comment(s)
Please note: The following are comments from readers. In no way do they represent the views of The Sioux City Journal or Lee Enterprises. We will not edit or alter your comments, but we do reserve the right to not post or to remove comments that violate our code of conduct. No comment may contain potentially libelous statements; obscene, explicit or racist language; personal attacks, insults or threats. Terms of Service
