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Wet weather delays the harvest of near-record grain and oilseed crops. USDA predicts net farm income will fall by nearly 40 percent from 2008. Nevertheless, a cutting-edge renewable fuels producer is bullish on the future. An examination of the economic outlook for rural America. (27:47)
Small Iowa Town Fights to Maintain Economic Security
Pearson: Despite some positive signs in Shenandoah, southwest Iowa and rural America, for that matter, has not entirely escaped the worst economic downturn since the Great Depression. Here to help us assess the impact and prepare for the future are some of the top experts in key sectors of the rural economy. Kim Greenland is the Market President for Great Western Bank in nearby Mount Ayr, Iowa. As a member of the American Bankers Association’s agriculture and rural bankers committee, Kim is on the front lines of agricultural lending. Sue Martin has been a fixture on Market to Market for more than three decades. She was among the first women in her field and regularly speaks to national audiences on price trends and marketing strategies. Tim Eggers is a field agricultural economist with Iowa State Extension. In addition to helping farmers with agricultural decisions, he is actively involved with Annie’s project, a program fostering problem solving, recordkeeping, and decision making skills in farm women. And Gregg Connell, Executive Director of Shenandoah Chamber and Industry Association. Gregg spearheaded local efforts to attract investment capital for a cutting edge biofuel project here in Shenandoah. And we’ll have more on that coming up in just a few moments. First of all, panel, thank you so much for being here, appreciate it, joining us here in the high school of the Shenandoah Mustang’s Auditorium. What a beautiful facility it is down here, so some great schools. Let’s get started. Let’s take the temperature here in rural America And, Gregg, as you mentioned on the feature, this is a rural area. You’re not a bedroom community to anyone. You have to survive and thrive based on your own skills. Kind of give us the temperature of rural economic development, the rural economy here in southwest Iowa and Shenandoah.
Connell: Well, the rural economy has changed. Twenty years ago, thirty years ago, it was possible to attract industries. A lot of times they were leaving the city, leaving union environments, and coming to these small towns. Today if a company is looking to leave someplace, they’re looking to leave the country. So as a result of that, it’s important that we recruit companies that are tied to the Midwest. For example, ethanol plants, any of the biofuel plants. And it’s important to think outside the box. The algae project that we have in Shenandoah is, again, that outside the box thinking that is absolutely necessary for survival in rural America today.
Pearson: You’re not immune from unemployment issues down here in this area, and I know you’re doing a lot to try and counteract that with some of the economic projects that you have going on right now. We just saw the new hotel going up.
Connell: Well, and that’s what you said earlier about everybody working together. In difficult times and in all times, but especially in difficult times, it’s just absolutely necessary that your city work with your economic development group, your school. And we just have a great synergy in Shenandoah. We have a great mayor. We have an outstanding city council. We have a school superintendent. They all get it and they all realize that if we roll in the same direction, we’re going to get there a lot quicker.
Pearson: That’s good to hear. Gregg, let’s switch over. Kim, talk a little bit from the ag perspective and ag lending perspective. Obviously it was the collapse of the capital markets that drove this global recession that we’re dealing with. It’s impacting us in agriculture. Huge decline in net farm income for 2009-2010. Fro ma capital standpoint, give us the temperature of agricultural banking in rural areas in 2009.
Greenland: The general condition of Iowa banks, rural banks is strong, well capitalized. I’d rate us good to excellent. We’ve had strong earnings in the past. Continue to have strong earnings. A lot of our borrowers in past years with a good ag economy have bolstered their financial statements, their balance sheets, good equity positions, good debt positions on them. And Iowa banks have followed that through their long-standing tradition of having well capitalized banks, good liquidity, good equity in our banks. We have ample funds to lend to folks with good credit. So banks, we’ve endured, come through some good years, good balance sheets, much like our farmers, though.
Pearson: Good point. Of course, agriculture has run counter to a lot of the general economic trends, strong commodity prices. Sue Martin, we’re going to talk in detail about prices coming up in just a moment. But as you surveyed the scene in the fall of 2009, it’s a challenging environment for producers. Latest corn harvest in 17 years here in the Corn Belt.
Martin: That’s right, Mark. It is the slowest harvest that we have seen even since probably 1992. What it’s done is what was previously thought to be a harvest surplus glut all at once, which was driving prices lower and giving anticipation for sharply lower prices, it has now spread that crop out to where you aren’t going to have any harvest glut and it’s going to come in very orderly, very slow. And that’s keeping end users having to bid, so it’s propping up the prices.
Pearson: All right. So kind of some good news there too. Tim, you work with a lot of farmers through your role through extension and getting the word out there. What are your priorities in 2009 when talking to farmers and gathering them together and talking about getting that technology transfer that Iowa State Extension is doing for them?
Eggers: Well, last year we really focused quite a bit on margins, because what was happening was those nitrogen prices going up is that profits were being squeezed just tremendously. This year, of course, nitrogen price is going back down, and so we have a little bit more profitability there. And also it’s really nice to look at those estimated costs of production for the next year and looking at the corn and beans and seeing economic profit. You know, in the past we’d look at those Iowa State University Extension budgets for corn and soybeans and we’d think, wow, the market prices are not anywhere near those costs of production because we were counting everything. Now we still county everything and those market prices are up and are solid. Even though there’s a lot of volatility, we’re still veering those costs of production for corn and soybean production.
Shenandoah, Iowa is located in the state’s southwest corner and in the middle of corn and soybean country. Unlike similar communities that have lost many of their mainstay companies, Shenandoah is still home to an Eaton truck transmission facility, a Pella windows manufacturing plant, a modern ethanol plant, and a still-bustling Main Street.Connell: Well, the rural economy has changed. Twenty years ago, thirty years ago, it was possible to attract industries. A lot of times they were leaving the city, leaving union environments, and coming to these small towns. Today if a company is looking to leave someplace, they’re looking to leave the country. So as a result of that, it’s important that we recruit companies that are tied to the Midwest. For example, ethanol plants, any of the biofuel plants. And it’s important to think outside the box. The algae project that we have in Shenandoah is, again, that outside the box thinking that is absolutely necessary for survival in rural America today.
Pearson: You’re not immune from unemployment issues down here in this area, and I know you’re doing a lot to try and counteract that with some of the economic projects that you have going on right now. We just saw the new hotel going up.
Connell: Well, and that’s what you said earlier about everybody working together. In difficult times and in all times, but especially in difficult times, it’s just absolutely necessary that your city work with your economic development group, your school. And we just have a great synergy in Shenandoah. We have a great mayor. We have an outstanding city council. We have a school superintendent. They all get it and they all realize that if we roll in the same direction, we’re going to get there a lot quicker.
Pearson: That’s good to hear. Gregg, let’s switch over. Kim, talk a little bit from the ag perspective and ag lending perspective. Obviously it was the collapse of the capital markets that drove this global recession that we’re dealing with. It’s impacting us in agriculture. Huge decline in net farm income for 2009-2010. Fro ma capital standpoint, give us the temperature of agricultural banking in rural areas in 2009.
Greenland: The general condition of Iowa banks, rural banks is strong, well capitalized. I’d rate us good to excellent. We’ve had strong earnings in the past. Continue to have strong earnings. A lot of our borrowers in past years with a good ag economy have bolstered their financial statements, their balance sheets, good equity positions, good debt positions on them. And Iowa banks have followed that through their long-standing tradition of having well capitalized banks, good liquidity, good equity in our banks. We have ample funds to lend to folks with good credit. So banks, we’ve endured, come through some good years, good balance sheets, much like our farmers, though.
Pearson: Good point. Of course, agriculture has run counter to a lot of the general economic trends, strong commodity prices. Sue Martin, we’re going to talk in detail about prices coming up in just a moment. But as you surveyed the scene in the fall of 2009, it’s a challenging environment for producers. Latest corn harvest in 17 years here in the Corn Belt.
Martin: That’s right, Mark. It is the slowest harvest that we have seen even since probably 1992. What it’s done is what was previously thought to be a harvest surplus glut all at once, which was driving prices lower and giving anticipation for sharply lower prices, it has now spread that crop out to where you aren’t going to have any harvest glut and it’s going to come in very orderly, very slow. And that’s keeping end users having to bid, so it’s propping up the prices.
Pearson: All right. So kind of some good news there too. Tim, you work with a lot of farmers through your role through extension and getting the word out there. What are your priorities in 2009 when talking to farmers and gathering them together and talking about getting that technology transfer that Iowa State Extension is doing for them?
Eggers: Well, last year we really focused quite a bit on margins, because what was happening was those nitrogen prices going up is that profits were being squeezed just tremendously. This year, of course, nitrogen price is going back down, and so we have a little bit more profitability there. And also it’s really nice to look at those estimated costs of production for the next year and looking at the corn and beans and seeing economic profit. You know, in the past we’d look at those Iowa State University Extension budgets for corn and soybeans and we’d think, wow, the market prices are not anywhere near those costs of production because we were counting everything. Now we still county everything and those market prices are up and are solid. Even though there’s a lot of volatility, we’re still veering those costs of production for corn and soybean production.
Gregg Connell, President, Shenandoah Chamber of Commerce: “I think Shenandoah is a very unique community in the ruralist of rural America. We're not a county seat. We're 30 miles from the closest interstate, we have no college, we don't have a casino, we aren't a tourist center, and yet we are a vibrant town of 5500 people. You know I don't think you can find very many places in rural America that beat all those odds.”
Gregg Connell, President of the Shenandoah Chamber of Commerce, is perhaps the town’s strongest cheerleader. His small town leadership philosophy is simple: make sure all community leaders are working in the same direction, outwork everyone else, and establish economic mainstays on Main Street.
Gregg Connell, President, Shenandoah Chamber of Commerce: “…when I was a child and we'd go on vacations I would always judge a community by the downtown. If you went through a downtown and it looked old and tired I always thought the community was old and tired.”
When trade groups complained Shenandoah lacked the necessary hotel rooms to support conventions, investors stepped forward to build a brand new multi-million dollar hotel on Main Street – now under construction.
Local leaders are hoping to develop a nearby dam and recreational lake project that, if realized, could draw tens of thousands of new visitors to Shenandoah businesses and support the community’s tax base.
The town of 5500 is not immune to the common issues of rural flight, an increasingly elderly population, and falling tax revenues for county services. But Connell insists decline in rural communities is an option that leaders choose to make.
Gregg Connell, President, Shenandoah Chamber of Commerce: “It's easy to believe all the pundents that say that rural America is declining and gone, but there is only one person, you know, that can change that and that's you, and that's stepping up in leadership positions and it's just simply saying you know not on my watch.”
Iowa Power Fund Faces Economic Uncertainty
Pearson: Gregg Connell, give us the blue print for how you put something like this together in a town like Shenandoah.
Connell: Well, you know, it's nice to see the finished result after three years of a lot of work and I can't tell you how many thousands of hours. But we had an ethanol plant. We could take a 56 pound bushel of corn and distill it. A third of it becomes ethanol, a third of it becomes distillers grain and a third of it CO2. We looked at it like you've got two revenue streams, why not a third. So we did a lot of work – background work, read the aquatic species study that was done from 1970 to 1996, realized that algae was that source of biofuel feed stock that we needed to develop, realized we had 148,000 tons of CO2 a year. We have 272,000 gallons of water coming back each day from the coolers at 81 degrees. We had the perfect environment, the perfect set up. We know that the future of algae is going to be in coal fired power plants. Another domino that has fallen as we've moved forward is the cap and trade legislation. So, the project seems almost to have a life of its own. We're proud that it's going to originate here in Shenandoah. And, again, we think that, as the Governor said, not the Silicon Valley but the Silicon Plain of Algae. And it's great that it can be here in Shenandoah.
Pearson: Gregg, you've got about 15 more seconds. Tell me what's next for Shenandoah after this project.
Connell: Well, I think the next thing that we're going to look at is other synergies off of the algae. Tremendous potential with algae. Algae stores its energy either in lipids or carbohydrates. There are thousands of different types of natural algae we don't use, GMO algae. So we think that there's a world of opportunities that are going to develop simply because it all started here in Shenandoah.
Pearson: Gregg Connell, thank you so much. Kim Greenland, you're a banker. When you look at a project like this, what's your reaction?
Greenland: Great. I mean to bring diversification, job creation, community involvement, the support that they get, great. Equity, raising equity for it. Couldn't be a better match here in southern Iowa with the work force that we have, the thought process of bringing in renewable energy, cap and trade, as he mentioned. The timing couldn't be better for bringing a project to southern Iowa. Lenders, we look highly at ways we can diversify and help projects of this nature.
Pearson: Ag bankers here in this state in this area have been strong economic development backers. Usually they are THE backers. When you look around right now, what do you see next? What do you see beyond biofuels? What other projects do you think are out there?
Greenland: Well, as Gregg mentioned, the diversification, the spinoffs that these bring. These projects have to start somewhere. We have to come up with the capital, the equity to do that, the manpower and things. And we believe the future is bright here in southern Iowa for the resources that we have, certainly biomass, energy, the corn that we have, the farmers' ability to bring that energy to market and things. So we think the future is bright for them from both a lending perspective and economic. We all sit on economic boards and couldn't be prouder of the progress that's being made here and throughout Iowa and southern Iowa.
Pearson: All right. Let's talk to our economist about this deal. Tim, how is this going to impact you in the work that you do with producers?
Eggers: Well, specifically with algae production, it's one of those things where as farmers are looking at ways to diversify with their off farm investments, opportunities like ethanol plants, like expansions of ethanol plants are one of those things that they evaluate. So as far as Iowa State University Extension's role, we have people like David Swenson on campus who does a really good job at helping people to evaluate these types of investments and look down the road at their expected returns. So that would be our role, I believe.
Pearson: 50 million gallon ethanol plant is pretty substantial too in terms of cash product demand for corn.
Eggers: Oh, amazing. As we were talking earlier with regard to the margins that were out there, if we were thinking about what was happening in 2006 before we went into harvest, we were looking at another year of okay returns historically. And since then we've just had prices that have been tremendous in comparison, and we've gotten quite used to these very high prices so that we think corn hitting about $4 on Thursday was a pretty significant thing but it wasn't $6 like it was just a little bit ago. But to think that just a few years ago we would think that $4 was an okay price is just amazing.
Pearson: It is. And we sit here now – we're going to talk with Sue Martin about where these prices are going. But real quick, just impact on livestock locally with the DDGs and the concentrated livestock feedings, are you seeing much reaction there?
Eggers: It seems to be positive, of course, because there's that other feed source there as far as the fed cattle market, because we do have quite a bit of cattle feeding here in southwest Iowa. So that corn is being replaced with those DDGs. And it's one of those things where when we have meetings about DDG use, the house is packed. At extension, that is great whenever we can put on a program and we fill the room. So it's been very positive for us, because people are hungry for information about how to use those DDGs and they seem to be working for our cattle feeders very well.
Green Plains Renewable Energy’s venture into algae production was based on more than a strong balance sheet. A potential next generation energy source received a multi-million dollar shot in the arm from the Iowa Power Fund. According to company CEO Todd Becker, the more than $2 million taxpayer funded award helped spur project development.Connell: Well, you know, it's nice to see the finished result after three years of a lot of work and I can't tell you how many thousands of hours. But we had an ethanol plant. We could take a 56 pound bushel of corn and distill it. A third of it becomes ethanol, a third of it becomes distillers grain and a third of it CO2. We looked at it like you've got two revenue streams, why not a third. So we did a lot of work – background work, read the aquatic species study that was done from 1970 to 1996, realized that algae was that source of biofuel feed stock that we needed to develop, realized we had 148,000 tons of CO2 a year. We have 272,000 gallons of water coming back each day from the coolers at 81 degrees. We had the perfect environment, the perfect set up. We know that the future of algae is going to be in coal fired power plants. Another domino that has fallen as we've moved forward is the cap and trade legislation. So, the project seems almost to have a life of its own. We're proud that it's going to originate here in Shenandoah. And, again, we think that, as the Governor said, not the Silicon Valley but the Silicon Plain of Algae. And it's great that it can be here in Shenandoah.
Pearson: Gregg, you've got about 15 more seconds. Tell me what's next for Shenandoah after this project.
Connell: Well, I think the next thing that we're going to look at is other synergies off of the algae. Tremendous potential with algae. Algae stores its energy either in lipids or carbohydrates. There are thousands of different types of natural algae we don't use, GMO algae. So we think that there's a world of opportunities that are going to develop simply because it all started here in Shenandoah.
Pearson: Gregg Connell, thank you so much. Kim Greenland, you're a banker. When you look at a project like this, what's your reaction?
Greenland: Great. I mean to bring diversification, job creation, community involvement, the support that they get, great. Equity, raising equity for it. Couldn't be a better match here in southern Iowa with the work force that we have, the thought process of bringing in renewable energy, cap and trade, as he mentioned. The timing couldn't be better for bringing a project to southern Iowa. Lenders, we look highly at ways we can diversify and help projects of this nature.
Pearson: Ag bankers here in this state in this area have been strong economic development backers. Usually they are THE backers. When you look around right now, what do you see next? What do you see beyond biofuels? What other projects do you think are out there?
Greenland: Well, as Gregg mentioned, the diversification, the spinoffs that these bring. These projects have to start somewhere. We have to come up with the capital, the equity to do that, the manpower and things. And we believe the future is bright here in southern Iowa for the resources that we have, certainly biomass, energy, the corn that we have, the farmers' ability to bring that energy to market and things. So we think the future is bright for them from both a lending perspective and economic. We all sit on economic boards and couldn't be prouder of the progress that's being made here and throughout Iowa and southern Iowa.
Pearson: All right. Let's talk to our economist about this deal. Tim, how is this going to impact you in the work that you do with producers?
Eggers: Well, specifically with algae production, it's one of those things where as farmers are looking at ways to diversify with their off farm investments, opportunities like ethanol plants, like expansions of ethanol plants are one of those things that they evaluate. So as far as Iowa State University Extension's role, we have people like David Swenson on campus who does a really good job at helping people to evaluate these types of investments and look down the road at their expected returns. So that would be our role, I believe.
Pearson: 50 million gallon ethanol plant is pretty substantial too in terms of cash product demand for corn.
Eggers: Oh, amazing. As we were talking earlier with regard to the margins that were out there, if we were thinking about what was happening in 2006 before we went into harvest, we were looking at another year of okay returns historically. And since then we've just had prices that have been tremendous in comparison, and we've gotten quite used to these very high prices so that we think corn hitting about $4 on Thursday was a pretty significant thing but it wasn't $6 like it was just a little bit ago. But to think that just a few years ago we would think that $4 was an okay price is just amazing.
Pearson: It is. And we sit here now – we're going to talk with Sue Martin about where these prices are going. But real quick, just impact on livestock locally with the DDGs and the concentrated livestock feedings, are you seeing much reaction there?
Eggers: It seems to be positive, of course, because there's that other feed source there as far as the fed cattle market, because we do have quite a bit of cattle feeding here in southwest Iowa. So that corn is being replaced with those DDGs. And it's one of those things where when we have meetings about DDG use, the house is packed. At extension, that is great whenever we can put on a program and we fill the room. So it's been very positive for us, because people are hungry for information about how to use those DDGs and they seem to be working for our cattle feeders very well.
Todd Becker, CEO Green Plains Renewable Energy: “…overall I think the Iowa Power Fund was hugely instrumental in making this happen. Without it would we have moved forward? I think we would have had to think twice a little bit about it, but because of the public demand and the public need for something like this -- we feel very confident. Maybe we would have moved forward slower. You know so maybe these wouldn't be here today.”
The Iowa Power Fund is the fruition of Gov. Chet Culver’s campaign promise to promote renewable energy projects across the state. A $25 million annual appropriation from the state legislature is overseen by an 18-member board. Two years into the grant process, the Power Fund board has already chosen a series of recipients including:
- Nearly $15 million to biofuel producer POET and their Emmetsburg cellulosic ethanol plant’s Project Liberty.
Nearly $3 million for wind turbine construction at Newton, Iowa’s TPI.
And $1.7 million for advanced solar panel development at Iowa State University.
Outside of the recipients themselves, the Iowa Power Fund’s largest supporter is the man who signed the program into state law.
Gov. Chet Culver, D-Iowa: “And we are doing about 30 of these projects now across the state thanks to the Iowa Power Fund. We are changing the way that we use energy, we consume it, we're making it a more efficient in terms of this plant, for example, not only reducing emissions, but using the by-products of this algae technology with feedstock and in other important areas. So, it's a great day for Iowa.”
Despite the Governor’s enthusiasm, critics argue programs like the Iowa Power Fund waste taxpayer dollars, bypass the free-market system, and artificially pick winners and losers in the energy sector.
Further complicating the program’s future is a widespread economic recession that has hit state governments with heavy budget shortfalls. In Iowa alone, state officials must trim hundreds of millions from the current year’s budget. Early projections for the following year’s deficit have crested as high as $1 billion. Legislators may be forced to defund many programs leaving initiatives like the Iowa Power Fund vulnerable.
The program’s future remains less than certain.
Ethanol Company Brews Green Energy
Transforming a kernel of corn into fuel-grade ethanol is nothing new for biofuel producers like Green Plains Renewable Energy. But the fourth largest ethanol company in North America also is brewing something different. Something their CEO calls the next generation of renewable fuel – the very green process of growing algae.Todd Becker, CEO Green Plains Renewable Energy: “…now that we're seeing corn ethanol succeed and to start to really turn the corner we can really focus ourselves on next generations, second and third generations. This is an ethanol plant that has the potential to make a lot of high quality algae that can be used for many sources.”
The promise of algae brought hundreds of citizens and public officials to the unveiling of what looks like a futuristic and experimental process.
Green Plains CEO Todd Becker was just one of many officials celebrating the biofuel company’s latest venture into the slimy substance of algae. According to company technicians, the green matter is best brewed with warm water, exposure to natural light, and fueled by carbon dioxide.
With the facility’s bioreactor located indoors, outdoor natural light is piped in via fiber optic cable and supplemented on dark winter days by a series of LED lights. Ethanol plants expel thousands of tons of carbon dioxide and waste heat during normal production. Green Plains is now diverting some Co2 and waste heat into the bioreactor to feed algae growth. Co2 capture could benefit the company’s bottom-line as lawmakers weigh potential cap-and-trade legislation in Washington.
But offsetting Co2 emissions is just one potential opportunity algae could provide biofuel producers.
Todd Becker, CEO Green Plains Renewable Energy: “…we're going to capture the CO2 from the process and grow algae, and then we're going to use that algae as an added value into something else like an advanced bio-fuel. We'll take the oil out of the algae and we'll make bio-diesel. That's going to happen potentially down the road. We'll take the fiber out of the algae and we'll make an advanced or high quality animal feed. And then we'll take potentially just the bio-mass, burn it here, and create our own energy.”
Becker’s use of the word “potential” is not a mistake. Much of algae’s energy and environmental promise has yet to be fulfilled. Nebraska-based Green Plains and CLARCOR Inc, a Tennessee-based water filtration company, joined forces to create BioProcessAlgae. The joint venture seeks to commercialize the growth and harvest of algal biomass. While the process is still in its infancy, the Shenandoah, Iowa photobioreactor is the first step towards mass production.
Tim Burns, Chief Executive BioProcessAlgae: “We joined forces to move the renewable energy sector forward. We’ve got a lot of work to do.”
Energy initiatives in Rural America have hit a bumpy road in recent years. Skyrocketing food prices, record-setting input costs, and high-price corn tossed some ethanol plants into bankruptcy. Green Plains appears to have largely survived ethanol’s perfect storm and even acquired a pair of VeraSun Energy plants following the biofuel company’s collapse.
But the newest venture into algae production wasn’t based entirely on a strong balance sheet. The State of Iowa’s Power Fund funneled $2.1 million in grant money to spur project development. The taxpayer funded award demonstrates that even the nation’s leader in corn production is ready to diversify its energy portfolio.
Andrew Batt, Market to Market: “Is Iowa the right place to build an algae ethanol production facility?”
Gov. Chet Culver, D-Iowa: “Absolutely. We really want to become the Silicon Prairie of the Midwest and do the research and development of second and third renewable technologies in Iowa, and this is just a great example of the fact that we can and we will do it here in Iowa.”
While the BioProcessAlgae photobioreactor represents phase 1 of the pilot project, Green Plains’ CEO sees room to expand.
Todd Becker, CEO Green Plains Renewable Energy: “The next project is going to move outside. These reactors are about 18 inches by about 10 feet. The next reactors that were building right now as we speak are three feet by twenty feet and we'll put a lot more of those outside, capture more of our CO2, grow more algae, and continue with the process.”
The promise of industrial expansion could be a boon to small towns like Shenandoah, Iowa. Current President of the Shenandoah Chamber of Commerce, Gregg Connell, originally pushed for algae production at the nearby plant. The town’s former mayor sees his community and rural America at the foundation of an energy renaissance.
Gregg Connell, President, Shenandoah Chamber of Commerce: “I think that this project, bio-fuels, is the equivalent of what Kitty Hawk was to flight and I think that four, five, six, ten generations from now people will look back and say my gosh, you know, what a primitive way to develop bio-fuels, but it all has to start somewhere and we think it's going to start in Shenandoah, Iowa.”
For Market to Market, I’m Andrew Batt.
Market Analysis: Sue Martin
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Underpinning much of the rural economy, of course, are commodity prices. And this week, with most farmers well behind schedule, the rare harvest rally continued. As of Thursday’s close, December wheat gained more than 30 cents, while the nearby corn contract moved nearly 10 cents higher. Harvest delays and uncertainty in the southern hemisphere supported oilseed prices again this week. As of Thursday, November soybeans moved 13 cents higher while the nearby meal contract fell more than $15 per ton.
Pearson: Sue Martin, let’s talk first about grain prices. In my experience, $5 wheat and, as Tim just mentioned, corn at $4, a little better at harvest time, that’s cause for celebration for most people.Martin: Well, it is, especially this has been a year of a very sideways market for many commodity markets. And so our highs this year were around $4.76 and, of course, we got down on the December contract to $3.02. Last year’s contract of December corn got down to $2.96. So, it’s been a very sideways market. And like I said earlier, the expectation of a large crop huge yields coming in all at once was creating some bearish attitudes and talk of sub $3 prices. And then, of course, the weather set in and things changed. You had the frost freezes and, of course, dry down is extremely slow. Some of this crop won’t dry down very well at all without help. But you also have the end user who also bought into that thought. Be it whether it was an ethanol plant or a livestock producer, they didn’t book ahead because they thought there was going to be a good supply to grab at the fall in normally what would be the cheaper prices. And it didn’t happen, so now they’re having to bid because they don’t have the supply readily to them. We’ve had a beautiful rally, the market has taken off. You’ve had some front buying in this marketplace. And I tend to think that when you look at commodities in general, you know, corn has been fairly underpriced to everything and that market is up around $4. $4.08 will give us some static. You might get to $4.62.
Pearson: All right. Well, we can look forward to that. Now let’s talk about oilseeds. Again, despite the harvest pressure, we are seeing the oilseed market with this late year again showing some strength here.
Martin: Well, I’ve been a proponent of soybeans for some time. This is the one market hugely bought ahead by foreign buyers, China especially. We have front end loading record in history. And with that kind of demand – of course, Argentina didn’t have much of a bean crop this past year. They’re going to have a whale of a crop next year. Brazil same thing, had weather situations with the La Nina. And so they too didn’t come off with as good of a crop as they would have liked to, and they’re basically much sold out, 93% sold. That leaves the U.S. as the only game in town. Normally Europe would be going to Brazil for beans. They can’t get them there, so they too are in our back pocket buying beans, which is a good thing. So I look at the bean market, and here’s where I think the most bullish market really is. The problem is you’re dealing with $10 beans. And let’s say this next year beans are going to $14, $13, if they do that. I would say $12 should be – I shouldn’t say sure, you know, but –
Pearson: Nothing is sure in this world except death and taxes, but $14 perhaps on soybeans.
Martin: There is a potential for $14 if the right things lay out, but we have to remember we’ve got a huge competition coming down the road. So we want to be gratifying the market with your crop now because it doesn’t pay you to store it now. And then coming back to the marketplace, can you do call spreads or you can go in and buy futures.
Pearson: Do some kind of an option strategy. Real quick, Sue, livestock markets. What do you see as we go forward? We’ve got about 30 seconds.
Martin: Well, and you know, Mark, I’ve never talked for 30 seconds in my life.
Pearson: I can’t believe I pushed you this fast, frankly. Now we’ve got 15. So there we go.
Martin: The cattle market is the one market that has really suffered and struggled. Well, the hog producer has too but he’s gotten some reprieve, but the cattle haven’t. And I believe we’ve put a low in here. We’ve worked through all these heavyweight cattle. We’re in tight supplies now for about the next three weeks, and I think you’ve got – I’m hearing meat salesmen for the packers are telling me they’re getting hit with all sorts of orders, just tremendous demand. I think you’ve got a cattle market now that has the potential to go to $88 in the cash market, maybe $90.
Pearson: Got ten seconds. Real quick comment on pork.
Martin: Well, the hog market is – normally you’d be going down in price at this time, but because of the fact that you’ve got pork so cheap in value, it too is enjoying some pretty good demand.
Pearson: All right. We’ve got to leave it right there. Sue Martin, thank you so much. That’s going to wrap up our special economic summit. I want to thank all of our panelists and our audience for joining us here in Shenandoah, Iowa. And we want to remind you that we’ll produce three more of these special road editions of Market to Market over the next year. Future programs are tentatively slated in Wisconsin, Nebraska and Kansas and you’re invited to join the discussion by submitting your questions at the Market to Market Web site. Sue Martin will be blogging at our site over the next week and you’re invited to share your insight as well. And, of course, join us again next week when we’ll return to our regular format. Until then, thanks for watching. I’m Mark Pearson. From all of us on Market to Market, have a great week.
Market to Market is a production of Iowa Public Television, which is solely responsible for its content.
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