Biofuels: Future Challenges & Opportunities
Retailers weigh in on the impact biofuel will have in their markets — both this next year and into the future.
September 11, 2008
You can’t pick up a newspaper or watch the news these days without seeing something about biofuels. The Midwest, with its concentration of current and proposed biofuel processing plants, has been a hub of discussion about the impact investments in biofuel processing capacity will have on agriculture in general, and on the retail dealerships’ businesses specifically. This year, growers are betting on higher prices with corn acres projected to jump dramatically, but what does that mean for retail dealers — both this season and in the future?
As part of the 12th Annual Precision Agriculture Survey sponsored by CropLife magazine and Purdue University’s Center for Food and Agricultural Business, retail dealers were asked what impact they thought the additional investment in biofuel processing capacity would have in their markets — both this next year as well over the next three to five years. The following results are based on responses from the 388 dealerships who responded from the Midwestern states.
To get a better feel for what dealers expected in the short term, survey respondents were asked to indicate their agreement or disagreement with several statements about the impact the increase in biofuel processing capacity was having in their markets this year. Their responses are shown in Figure 9. Almost three-quarters of the respondents agreed or strongly agreed that this year there would be a major impact on grower input purchase decisions in their market. Almost as many respondents (71%) were expecting fertilizer supplies to be tight this year with potentially some supply shortages. Two-thirds of the dealers (67%) agreed that, due to the increased investment in biofuel processing capacity, growers were more interested in maximizing yield this year compared to a year ago.
Finding Where Precision Fits In
Respondents were less likely to agree that there would be an increased demand for precision services this year (28% thought there would be increased demand while 44% disagreed). And respondents were evenly split on whether or not the interest in biofuels would be a short run phenomenon (three years or less), with one-quarter of the respondents agreeing it would be short-term and one-quarter disagreeing (with the remaining neither agreeing nor disagreeing). Because of the uncertainty of the long-term impact, over half of the respondents (55%) said they would not be purchasing or leasing additional application equipment this year and only 16% agreed that they would purchase or lease more equipment as a direct result of the investment in biofuels processing capacity.
To get a better understanding of what impact Midwestern dealerships expected biofuels to have on their businesses in the longer term, respondents were asked to comment in an open-ended question on what they were expecting in the next three to five years. Their comments were coded in order to get a better summary of what the group as a whole was saying and the summary is shown in Figure 10.
In addition to the direct impacts of more corn acreage, either through more continuous corn production or changes from other crops to corn production (mentioned by 37% of the respondents) and continued increased fertilizer demand (mentioned by 28% of the respondents), the range of expected effects was diverse, probably reflecting the wide range of discussions going on throughout the Midwest (Figure 2). Though some dealers were expecting a positive overall impact with increased profits for both crop input dealers and growers, there was plenty of doubt expressed about the long term benefits of the increased production of biofuels, from the effect on grain storage requirements to the impact on livestock production and the costs of producing other crops.
Some of the comments respondents made included the following:
■ It will be a positive influence more than likely. Demand for nitrogen products will be the biggest factor. Agriculture may be fun again?
■ Better markets, more profits to the farmer, more money to spend with me.
■ Growers’ net worth will increase, many will try to expand. Cash rents will go up, land values will increase, corn acres will expand, growers will spend money to try to store more fertilizer and chemicals on farm. More growers will purchase their own application equipment.
■ Where are we going to store all this corn?
■ It has the distinct possibility of chasing livestock production out of the U.S. We are staring at a huge train wreck.
■ Tight fertilizer supplies in ALL areas for ALL crops. Corn and beans are not all that we should think about. What about small grains and hay that are affected by all of the above?
As interest in biofuels continues to grow, the overall impact on specific areas of agriculture will continue to become more clear. Crop input dealers’ challenge will be how to respond to changes in customer needs while remaining flexible enough to continue to respond to an uncertain, evolving future.