Sunday, December 04, 2011
Corn Stover Marketing Will Require Much More Market Analysis Than Corn Marketing
Many Cornbelt farmers are planning to deliver corn stover to the local ethanol plant to generate a new income stream. Others are planning to cultivate and harvest switchgrass, miscanthus, or other biomass crops also for ethanol production. Yet others are investing in other on-farm forms of energy production, such as manure or algae, to deliver to biodiesel producers. While they all have visions of dollar signs, they may also want to make plans to further their education and obtain a graduate degree in global energy market economics.
Some months back the flashpoint to ethanol policy was “indirect land use impact” as it pertained to expansion of soybean acreage into the Amazon rain forest when corn was delivered to a US ethanol plant. While that issue may be long from being resolved, the biofuels industry, whether it is fed by US corn, Brazilian sugarcane, or Malaysian palm oil will have a global impact on many resources. Those could include soil erosion, nutrient loss, air quality degradation, and many others say a panel of researchers which involved economists, scientists, policy makers, and others looking at the impact of biomass feedstock markets on energy, agriculture, and farmers.
The group determined that decisions made by farmers on crop management will have to integrate with global agriculture and energy markets. And they fear that no accounting for field and watershed environmental impact will prevent an accurate assessment of biomass as a long term energy resource. Their effort focused on:
(1) The linkages between agricultural and energy markets,
(2) The impacts of these market dynamics on farm-level decision making,
(3) The effects of farm-level land management decisions on the environment, and
(4) The lack of existing market-based feedbacks from the environmental impacts of land management at a field scale to these macro-level drivers.
The group could have focused on a variety of biomass crops used to produce cellulosic ethanol, but settled on corn stover because of its likelihood of being the first such product in wide spread use and its ability to be quickly harvested and delivered with current equipment found on farms. They indicate that agriculture and energy are closely tied because agriculture is dependent upon sources of energy, and more recently, agriculture has been supplying energy in the form of ethanol and biodiesel. And the use of residue, such as corn stalks, will further tighten the bond.
The researchers say increased demand for commodities, which includes a pricing component, might alter crop yield and land use changes along with local production practices, which include crop rotation and land management. Subsequently, failure to recognize such drivers for biomass and the linkage between agriculture and energy may produce misleading supply estimates of feedstocks. That, they say, would limit the extent to which biomass feedstocks would displace conventional energy resources.
The impact for farmers originates with the cost of inputs, since production decisions sometimes are made because of the costs of fuel and fertilizer, the latter of which is a function of natural gas pricing. The same holds true for harvesting corn stover, since P and K have to be replaced and their pricing will have to be covered by the cost received from the corn stalks.
“All else being equal, higher energy prices increase the competitiveness of the biofuels sector and increase competition for agricultural commodities, establishing a price floor for these crops,” the researchers found. Since demand for biofuels increases the price of feedstocks, such as corn, the researchers say, “To maintain their competitiveness in the energy markets, these feedstock prices cannot increase faster than energy prices. This in effect provides a price ceiling for agricultural feedstocks for biofuels.” Not recognizing that leads one to overestimate the impact of energy prices on biofuel production.
Corn farmers promoted ethanol as a new market for an abundant crop, and have benefited from the higher prices for corn resulted from biofuel demand. While farmers want lower input costs from lower fuel prices, they do not want to see the corn price decline from less ethanol demand. The researchers contend that “First, lower fuel prices reduce the cost of agricultural production (input cost reduction effect) and second, they make biofuels less competitive (substitute output price reduction effect). The net impact will depend on the relative size of each of these effects.”
The researchers report that concerns have been expressed about the expansion of corn acres because of demand. Some estimates that 94 million acres of corn will be planted in 2012 means that acres have to come from somewhere, which include the 1.6 million from expiring CRP contracts. They call for good market analysis that will evaluate the use of corn stover for biofuels, its impact on food production, and how it all integrates with greenhouse gas emissions. They believe the thought that biomass is a better feedstock for biofuel may not accurately predict the market impact of the crops and any environmental outcome. They believe it would increase acreage revenue for corn, but question if that would not draw in marginal ground that would reduce overall corn prices and start some new dynamics:
1) More corn stover removal would require more fertilizer, and that would require more tillage for incorporation and more diesel fuel to do that.
2) Will there be more transportation that will really demand increased biofuels production?
3) The rate of fossil fuel replacement by biofuels depends on crop production potential and cropland management, and the result has been higher prices for grain. Even the use of non-edible crops to be refined into biofuels will compete for land.
4) Increased consumption of corn stover due to revenue opportunity for farmers will bring fragile land into production, which will produce less biomass per acre, with the likelihood of increased nutrient application and greater soil loss.
Summary:
The interdependency between traditional crop prices, energy prices, and biomass collection restrictions, as well as energy, conservation and farm policies, underscores the linkages between traditional agricultural markets, the energy system, farm-level decision making, and emerging markets for biomass feedstocks such as corn stover. The impact will require substantial analysis by participating farmers.
Posted by Stu Ellis on 12/04 at 11:24 PM | Permalink
Comments
Posted by: David at December 5, 2011 10:10AM
The interdependency between traditional crop prices, energy prices, and biomass collection restrictions, as well as energy, conservation and farm policies, underscores the linkages between traditional agricultural markets, the energy system, farm-level decision making, and emerging markets for biomass feedstocks such as corn stover. The impact will require substantial analysis by participating farmers.
Posted by: Carbonless Forms at December 6, 2011 11:11AM
I would like to clear up one item in this article. Currently, the price of natural gas has nothing to do with the price of nitrogen fertilizer in this country. The price of fertilizer is being set by the demand side, not the supply side. Prior to 2000, when the U.S. was relatively self-sufficient in nitrogen fertilizer production, the price of natural gas did have an impact, but that time is gone now. The current price of natural gas of about $3.50 per MMBtu means that the cost of a short ton of anhyrous ammonia at the plant gate in the typical Gulf coast nitrogen plant is only about $145. I can’t see how that can support a price of over $800 per ton to a farmer in the Midwest.