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DC Dialogue

Vultures circle around ethanol

What's with all the negative press over ethanol? Suddenly every pundit in America is wringing his hands over what should be a very good thing for the United States. You sure wouldn't know it by reading the New York Times and all the other major media players.

The negative rants all coming on the heels of President Bush's state of the Union address where he called for a five-fold increase in renewable fuels by 2017.

We used to call this a •hog pile.' Mark Lambert, Communications Director for the Illinois Corn Growers Association, calls it a •pig pile.' That's where somebody jumps on somebody and then everyone else piles on.

"In the past, ethanol was a minor aggravation for the oil industry, much like a flea on a dog,•bCrLf writes Mark. "Now the Pit Bull that is the oil industry has a Chihuahua standing behind it and the little bugger is biting its hind quarters. So what has happened is a series of negative article from the Wall Street Journal to the Chicago Sun Times.•bCrLf

You can read his column here.

Agriculture interests haven't taken this lying down. The National Corn Growers Association (NCGA) went to great lengths to pick apart the latest Wall Street Journal diatribe, refuting each sentence. You can read it here.

I don't recall anyone saying ethanol would save the world. The product itself has flaws: yes, it is not as energy efficient as gasoline. Yes, it may cause lost export markets and more expensive pork chops. And yes, the economics of the whole industry are something of a crap shoot at the moment. I'm pretty sure the early days of the automobile or the computer chip were also.

Eventually, ethanol will stand on its own. It has to. Right now, government mandates are helping to build the infrastructure. Americans appear to agree - at least in every survey I've seen so far - that we need to move away from foreign oil from unstable countries. So, this is the price we will pay to do that.

Twenty five years ago, ethanol was a minor aggravation. Back in 1980 it was 175 million gallons. Today it's more than five billion gallons. Predictions call for that to potentially double again in the next few years.

One thing is certain: Public consciousness over ethanol has been raised. Demand is growing. The heat is on and now, we must deliver.

No-brainer Thankfully that shouldn't be too much trouble this year, as long as Mother Nature cooperates. Our survey released this week shows U.S. farmers will plant an additional 10 million acres of corn, lured by the prospect of $4 per bushel December futures.

A Northern Illinois banker friend told me yesterday he was recommending that most of his farmer clients plant nothing but corn this year. I had lunch with one of those farmers, who is putting more, but not all, of his acres into corn.

Why not? Four bucks times 185 bushels per acre equals $740 gross per acre. That 185 is probably a very conservative figure for this guy. So if he's going to gross that much, who cares if he's paying a little extra for nitrogen or higher cash rents?

Compare that to, $7 for soybeans, times 50 bushels per acre. That $350 is less than half the corn gross. Obviously a lot more goes into these calculations than what you see here, but you get the point.

If you haven't already made these calculations, try these online rotation calculators:

Iowa State University - Use this rotation profitability calculator to easily compare corn-soybean, corn-corn-soybean and continuous corn rotations.

University of Illinois — This corn-soybean rotation tool was updated at the end of 2006.

Purdue University — This is not a spreadsheet but rather a crop-cost and return guide.  

Pioneer Hi-Bred International — The company has a cost of production economics calculator and other information on crop rotation changes at their Growing Point website. New users must register first.

Are you getting hit by higher cash rents as a result of higher grain prices? Tell me your story in the comment box below. Thanks!

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