Ethanol Uncertainties Prevail as Harvest Nears
MILWAUKEE -- Wisconsin's farm crops are flourishing, yet agribusinesses are worried about the outlook for ethanol, a corn-based biofuel, and the global economy.
The corn harvest is projected to be 3.28 million acres this year, making Wisconsin eighth in the nation in corn production, according to commodity analysts.
Even with late planting, the crop has done well, said Robert Battaglia, director of the U.S. Department of Agriculture statistical field office in Madison.
"The hot weather has pushed things along," Battaglia said recently.
Yet businesses that provide goods and services to farmers say they're worried about the agricultural economy.
A recent survey showed the confidence of agribusinesses slipped for the first time since August 2010, according to DTN/The Progressive Farmer, an agricultural information service based in Omaha, Neb.
One issue is that farmers have come to depend on raising millions of bushels of corn for ethanol - a biofuel, commonly blended with gasoline, that has been supported by a federal tax credit of 45 cents per gallon.
Ethanol production in the U.S. increased 23 percent in 2010, when a record 35 percent of total U.S. corn production was dedicated to the biofuel, according to a report from Robert W. Baird & Co.
The USDA recently projected a 9 percent increase in the use of corn for ethanol production in 2011, the report noted.
But Congress is considering ending the tax credit, which could hurt ethanol sales and reduce farmers' incomes.
It's still being negotiated, said Josh Morby, executive director of the Wisconsin Bio Industry Alliance, which represents ethanol producers.
"But no doubt there's going to be a change," Morby said.
Agribusinesses, including banks, also have doubts about whether the nation will have its third-largest corn crop this year, given extreme weather across the grain belt. Economists with the American Farm Bureau Federation say tight supplies mean the U.S. needs every bushel of grain that farmers can produce this year.
"I am hearing a lot of disbelief about what the USDA is saying with respect to acres and yields for this season. Too many corn and bean acres got planted late, really late," Robert Hill, a principal with Caledonia Solutions, an agricultural marketing research firm in Minnesota, told DTN.
"And on the livestock side, herds in the South are being liquidated due to drought. People in farming communities can see the lack of production uniformly with their own eyes, so the expectations are that farmers' wallets may clam shut over the coming year," Hill said.
"Some farmers will be making out really well, but in most areas there may be less total money available to spend on goods and services following the coming harvest," he added.
A weak U.S. dollar, low interest rates, and foreign demand for corn and soybeans have kept the farm economy strong, according to DTN analysts.
A change in any of those could slow things down, which means the farm economy may have peaked.
"This time we are really seeing a stagnant outlook," said Mary Rose Dwyer, who directs the DTN three-times-per-year survey.
"I would interpret this as managers don't expect a future boom in business, nor are they frightened by the future. Most just expect business to continue as it is," Dwyer said.
Farmers have "been rocked just as everyone else in the country has by the uncertainties around the general economy, politics and the variability on Wall Street," Hill added.
