Crops Share Roots in Cash

It may not seem logical, but the price of corn in Iowa affects Idaho potatoes and wheat -- quite a lot, in fact, according to agricultural economist Michael Swanson.

Swanson, who works in the Agricultural Industries Department at Wells Fargo Bank, was in Idaho Falls on Tuesday to discuss the influence of the global and national economies.

He met with some 40 members of the local agribusiness industry at the Shilo Inn.

The government's ethanol policy is the largest single driver of increased prices for commodities and land, Swanson said.

That's because the demand for Iowa corn is driven by ethanol subsidies and political mandates that gasoline contain 10 percent ethanol - made from corn.

""In Iowa, you're accused of being unpatriotic if you're not in favor of higher corn prices,"" he said.

Never mind that ethanol is a less-efficient fuel than gasoline.

""Ethanol has only 70 percent of the energy value of gasoline - it has fewer (British thermal units),"" Swanson said.

Market conditions should mean that when more ethanol goes into fuel, those fuel prices should be lower, he said. That's where energy policy and politics come into play, leading to overpriced corn.

""We have not made this about the consumer; it's about the producer,"" Swanson said. ""Until we make it about the consumer, it's not fair.""

As a result, consumers, we as well as agricultural producers, have higher costs.

When government policies keep Midwest corn prices up, prices and costs are higher for Idaho producers.

The effect of political policies extends to the global economy as well.

In the early 2000s, 27 cents of every dollar went into foreign markets. By 2011, that figure had climbed to 47 cents.

""We can't forget that trade bureaucrats all over the world"" affect the local economy, Swanson said.

He cited the example of beef, particularly in Asian markets.

""When you go to the store, do you buy chicken or beef?"" he said. ""Right now, we're living on wealthy foreigners in the beef market. ... They're willing to pay more for beef than the low-end consumers here.""

Producers must be aware of changes in today's economy if they are going to survive.

Swanson emphasized the need to plan on price volatility and manage risk.

""The point I want to make in agriculture is that these things get reversed,"" he said. ""Are we prepared for that?""

That includes the high volatility in commodity prices.

""The alfalfa and corn markets have become the same because they're tied together,"" Swanson said.

Both commodities are in demand for livestock feed.

Wheat, which commands more Idaho acres than any other crop, also is tied to corn as a food in the global market. According to the USDA's National Agricultural Statistics Service, 1.4 million acres of wheat were harvested in Idaho last year.

NASS reported barley, another strong Idaho commodity, at 500,000 acres in 2011.

The Idaho potato harvest, meanwhile, was reported at 310,000 acres last year.

Corn was Idaho's third-largest field crop in 2011, according to NASS, at 345,000 acres.