Will farmers plant more corn and fewer acres of soybeans in 2007? "I think here in Iowa and probably states to our north and east, a lot of farmers have already made that decision. They will plant more acres of corn and fewer acres of soybeans this coming spring," says Steve Johnson, an Iowa State University Extension farm management specialist.
"There has been a lot of nitrogen already applied and fall tillage work done on the deep loam soils," he observes. "But as you cross the Missouri River and go west of Iowa, I think the verdict is still out. That's especially where there are sandy soils and where it has been pretty dry this fall. I'd guess we probably won't know what those corn acres are for awhile yet. We probably won't even know for sure on March 30 when USDA issues its Prospective Plantings report. It could be June—in USDA's June Acreage Report--before we know whether it's a corn or bean shift and how much of each crop is planted in 2007."
Corn market still bidding for acres
Here we are at the end of 2006, and futures market prices are showing that the market is still trying to buy corn acres away from soybeans for spring 2007 planting. That is indicated by the March 2007 futures contract for corn being stronger than the December 2007 corn futures contract prices.
There is a lot of spread activity going on. "I guess it's the speculative dollars that are selling out of the long positions they've taken over the last three months, in both the corn and bean market," says Johnson. "I encourage farmers, don't panic sell. They've likely done some evening up of positions going into the end of 2006. I encourage all farmers to have a marketing plan—with both a price objective and a time objective. Either you are planning or you are guessing. Farmers who are guessing probably don't feel very comfortable in today's market."
Johnson has been traveling the Corn Belt speaking at farmer meetings the past few weeks. Following are some things he's been hearing from farmers, and his observations regarding the corn price rise and excitement about increased use of biofuels made from corn and soybeans.
Have a plan if you want to buy DDGs
There's a lot of excitement about expansion of the ethanol industry in Iowa and the Midwest. The Nebraska Cattlemen's Association isn't happy with the situation regarding access to distiller dried grains in their state. Most of the DDGs produced by the plants those farmers are dealing with are already tied up on contracts, making it impossible for some cattlemen to get DDGs.
These farmers are selling corn to the plant but they aren't able to buy DDGs back because the DDGs are being sold on contract to other user. Many of those contracts are with large feedlots. What is ISU's Johnson hearing on that point and what should Iowa producers be doing?
As soon as you have an ethanol plant coming into your area, you'd better be developing a strategy to access the distillers grain, he advises. Distillers grain is leaving Iowa in large volumes, going to feedlots and dairies in states to the west. "You and several other cattlemen in your vicinity may have to put together a contract to make sure you get an adequate supply of distillers grain," he says.
High corn prices impact DDG market
"For example, I've heard that an ethanol plant in South Dakota is shipping DDGs four hours away by truck," he says. "That's a long haul. The point is, you have to plan ahead to get the DDGs if you want them. When we have high corn prices, we are going to see a lot of interest in accessing distillers grain."
That's good news for ethanol plants. If the facility has that much demand, the price of DDG can move up and that's another product for the ethanol plant to sell for a higher profit.
"We're seeing all sorts of innovation and changes in farm business management today as a result of these higher corn prices being driven by increased ethanol demand," says Johnson. "There are commodity brokers who are brokering distillers grain, and local elevators and co-ops that are doing it too. They are the middle people to contact, if you need distillers grain. And there are farmers getting involved in hauling the co-product. For example, five or six farmers can together and retrofit trucks. Some are making a couple runs a day to the ethanol plant to move distillers grains to their feedlots or their neighbors' feedlots."
Farmers hauling DDGs from plants
When you get these higher prices for corn and DDGs, livestock producers get pretty innovative, notes Johnson. They realize they can make money in the trucking business with ethanol plants. Some Iowans are retrofitting trucks right now for ethanol plants that are not yet built.
He's also getting questions from farmers wondering about a possible drag on feed efficiency from feeding DDGs compared to corn. Is there a decline in feed efficiency with DDGs compared to corn grain fed to livestock?
"Feeding DDGs means there will be new rations for a lot of livestock producers," notes Johnson. "Animal science researchers and extension specialists at Iowa State University are very much involved with that issue. You should contact our ISU Extension livestock field specialists if you have questions or need good information on the DDG topic."
Know what you are getting in DDGs
"When new ethanol plants first open you see a lot of variability in the nutrient content of the distillers grain," he says. "It appears as though the variability becomes less and less as the ethanol plant gets more experience in producing the ethanol and the co-product."
Being in tune with your own livestock rations and working with the management of the ethanol plant on any questions you may have is your best bet. "You should know the nutrient content of the DDGs you are buying, and do some sampling and testing periodically," says Johnson. "I think that would be key to improve the efficiency of your livestock operation if you are feeding DDGs."
Processors and feedlots were very aggressive in getting corn bought this fall, sums up Johnson. The price of corn is still going to be very well supported going into 2007, looking at the fundamental supply and demand numbers. What about soybean price prospects? "I have a feeling beans will get a lot of influence based on what going on with the weather in South America," says Johnson, "the soybean crop prospects that develop there in Brazil and Argentina during the next couple of months."