The Ethanol Squeeze Play

Ethanol railcar

Not to over-simplify the situation, but the ag retail marketplace really had an easy time in 2007. For the most part, retailers were able to sit back (metaphorically speaking, of course), watch their grower-customers plant 12 million more acres of corn than anybody expected, and step up to the plate with products and services that catered to this market segment. In almost every case, the result was a home run in terms of profits.

“Our sales have increased a lot in 2007,” says Kathy Sims, president for Sims Fertilizer & Chemical Co., Osborne, KS. “I feel that there are two important reasons for that — one, we had much better rainfall and two, the higher prices growers are receiving for commodities. Growers are more optimistic than they have been for the past several years.”

Even with this all-around good fortune on the farm, corn was by far the biggest story in 2007. According to USDA October crop production statistics, the nation’s corn harvest was projected to be 13.3 billion bushels, up an incredible 26% from the 2006 total. This makes 2007 the largest corn production year on record since 1933. Average yields also increased, up 5.6 bushels per acre to 154.7 bushels, but slightly behind the 2004 average of 160.4 bushels per acre.

Virtually all market analysts credit the rapid growth of the ethanol industry for spurring this demand for corn, with more than 17% (2.28 billion bushels) of the total corn crop being utilized by this marketplace. “Ethanol production has tripled from 2001 to 2006,” says Mark Lambert, communications director for the Illinois Corn Growers Association. “Next year, we will use 3.8 billion bushels to make ethanol. By 2008, we could be making 9 billion gallons.”

All Inputs On Deck

By the same token, crop input sales went along for the ride. According to preliminary data collected in CropLife’s® annual CropLife 100 survey of ag retailers, all three major input categories — fertilizer, crop protection, and seed — recorded healthy sales increases in 2007. While strong sales growth for fertilizer and seed has been the norm for many years, crop protection products were off $800 million in 2006. In 2007, this category looks like it will experience a net sales gain of $100 million.

With all this positive buzz surrounding ethanol and corn, it’s somewhat surprising to hear much of the news coming out of the marketplace in recent months. Back in May, market forecasters were speculating that corn acreage would need to increase by 5 million to 6 million acres in 2008 to keep up with ethanol growth. However, by the late summer, these same forecasters were revising their corn acreage estimates downward to around 87 million acres. In addition, corn prices have fallen to just above $3 per bushel from as high as $4 per bushel earlier this year.

What gives? In a word, the ethanol industry seems to be suffering from oversupply. As ethanol plants have churned out more and more of the alternative fuel, end-user demand hasn’t kept up. Today, there are numerous ethanol plants that have been shut down and others on the drawing board have been put on hold as supplies have expanded. “Much of the movement toward ethanol was driven by the gasoline industry as producers were replacing MTBE (methyl tertiary butyl ether) as an additive in their products,” says Dr. Nicholas Kalaitzandonakes, director of economics management of agrobiotechnology center for the University of Missouri – Columbia. “This rapidly drove up ethanol prices in 2006.”

A more pressing problem for ethanol growth is the lack of a transportation infrastructure to move it. According to a study conducted by Downstream Alternatives Inc., 85% of the nation’s 400 to 500 gasoline terminals that blend ethanol are not equipped to handle the 100-car unit trains needed to move larger volumes of ethanol.

Still, ethanol demand can rebound. Iowa State University researchers forecast that the saturation point for ethanol just as a blending ingredient is 13 billion to 14 billion gallons, meaning this market segment alone could sustain overall growth through 2011. Also, in mid-October, oil prices hit a record high of $87 per barrel as worldwide production declined. In fact, some analysts predicted that $100 per barrel oil could become a reality by the end of 2007. Most studies say that any oil price over $70 per barrel makes ethanol a more profitable alternative.

According to Sano Shimoda, president and founder of BioScience Securities, Inc., retailers are poised to reap the benefits of biofuels, even as the market pulls back some from its exceptional performance of late 2006 and early 2007. “Biofuels are accelerating structural changes in agribusiness,” says Shimoda. “High corn prices and the drive to maximize yield are accelerating growers’ adoption of technology such as triple-stacked biotech seed and precision farming. Also, higher crop prices, especially corn, combined with a focus on maximizing yield, has incentivized growers to increase the use of all inputs to maximize net returns per acre as well as reinventing farming practices such as the use of fungicides on corn.”

This will open the door for ag retailers, he adds, that adopt a more “providing integrated solutions” approach to their grower-customers. “Ag retailers will have to shift from only offering products to growers to building partnerships or relationships with them,” says Shimoda. “This will probably lead to many Midwestern dealers consolidating. But this offers tremendous opportunity for those retailers ahead of the curve.”

Topics: ,

Leave a Reply

Crop Inputs Stories

Syngenta Sign
Crop InputsSyngenta: Keep Ag In Mind During Election Season
February 10, 2016
As presidential candidates stake out their 2016 election platforms and key priorities, growers and their business partners should seek opportunities Read More
Crop InputsMarrone Bio Innovations Submits New Bio-Fungicide For EPA Approval
February 9, 2016
Marrone Bio Innovations, Inc. (MBI) today announced that it has submitted a new biological fungicide (MBI-110) to EPA. The broad spectrum Read More
Crop InputsWeed Expert: Adding A Second Herbicide Not Always Easy
February 9, 2016
In my last post, I reviewed some recent research that suggests one of the best ways to delay the evolution Read More
Crop InputsGenetic Literacy Project: Farmers Need More Herbicide Choices
February 9, 2016
There are two things that I think just about every weed scientist can agree on, writes Andrew Kniss for The Read More
Top 100 Articles
Elburn Cooperative
CropLife 100Elburn Cooperative Members Vote To Join CHS
December 28, 2015
With 81% of eligible producers voting, 94% cast an affirmative ballot for Elburn Cooperative, a diversified agricultural retailer based out Read More
West Central Cooperative, Jefferson, IA
CropLife 100Farmers Cooperative-West Central Merger Approved
December 21, 2015
The members of Farmers Cooperative Co. (FC), Ames, IA, and West Central Cooperative, Ralston, IA, have both approved the merger Read More
Wheat Growers Innovation Center, Bath, SD
CropLife 100Wheat Growers Opens Innovation Center
December 21, 2015
Wheat Growers’ commitment in providing its farmer-owners with the latest in technological advancements now has a one-of-a-kind focal point, as Read More
CropLife 100ARA Selects The Andersons As 2015 Retailer Of The Year
December 9, 2015
The Agricultural Retailers Association today named Maumee, OH-based The Andersons as its Retailer of the Year for 2015. The award Read More
CPS Washington Court House John Deere Sprayer
CropLife 100Application Equipment Report: It Is Easy Being Green For Top 100 Ag Retailers
December 5, 2015
On The Muppets television show, Kermit the Frog is famous for singing a song about the troubles he encounters in Read More
Fertilizer Bin
CropLife 100Fertilizer Sales: Another Down Year For Top 100 Ag Retailers
December 4, 2015
In pure number terms, the fertilizer category still dominates all crop inputs/services among CropLife 100 ag retailers. In 2015, for Read More
Latest News
EquipmentCase Unveils 2000 Series Early Riser Planter At NFMS
February 10, 2016
Case IH revealed the all-new 2000 Series Early Riser planter to media and attendees at the opening of the National Read More
Syngenta Sign
Crop InputsSyngenta: Keep Ag In Mind During Election Season
February 10, 2016
As presidential candidates stake out their 2016 election platforms and key priorities, growers and their business partners should seek opportunities Read More
Crop InputsMarrone Bio Innovations Submits New Bio-Fungicide For E…
February 9, 2016
Marrone Bio Innovations, Inc. (MBI) today announced that it has submitted a new biological fungicide (MBI-110) to EPA. The broad spectrum Read More
Crop InputsWeed Expert: Adding A Second Herbicide Not Always Easy
February 9, 2016
In my last post, I reviewed some recent research that suggests one of the best ways to delay the evolution Read More
Crop InputsGenetic Literacy Project: Farmers Need More Herbicide C…
February 9, 2016
There are two things that I think just about every weed scientist can agree on, writes Andrew Kniss for The Read More
HerbicidesWeed Expert Warns North Dakota Growers Of Coming Herbic…
February 9, 2016
Ford Baldwin painted a bleak picture of weed control at a recent workshop here exploring the future of ag production, Read More
HerbicidesWSSA Announces New, Updated Free Web Resources
February 9, 2016
Today the Weed Science Society of American (WSSA) announced that new and updated educational materials for both weed scientists and Read More
Soybean field
FungicidesFour Arysta Fungicide Formulations Given FIFRA Approval…
February 8, 2016
Arysta LifeScience North America recently announced the issuance of Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) Section 2(ee) Recommendations for Read More
FungicidesAgri-Fos Systemic Fungicide Plus Receives EPA Registrat…
February 8, 2016
Vivid Life Sciences has announced the EPA registration of Agri-Fos Systemic Fungicide Plus, a highly concentrated active ingredient phosphite fungicide, Read More
Crop InputsBayer Contests EPA’s Decision On Valuable Insecticide F…
February 5, 2016
Crop Science, a division of Bayer, has announced it has refused a request by the Environmental Protection Agency (EPA) to Read More
Wheat Field North Dakota
Seed/BiotechSyngenta Wins Seed Fraud Suit Against South Dakota Grow…
February 5, 2016
Syngenta has obtained a $25,000 settlement from Paul and John Mayclin, Mayclin Farms, Plankinton, SD, in response to their Plant Read More
ManagementOABA Annual Conference Wraps Up In Columbus
February 5, 2016
More than 300 Ohio AgriBusiness Association (OABA) members and industry professionals were on hand to engage in collaborative learning and Read More
Crop InputsBayer To Contest EPA Flubendiamide Decision
February 5, 2016
Crop Science, a division of Bayer, announced today it has refused a request by EPA to voluntarily cancel the uses Read More
Syngenta
Seed/BiotechNot So Fast: ChemChina Syngenta Takeover Could Draw Nat…
February 5, 2016
State-owned China National Chemical Corp. (ChemChina), which plans to buy Swiss seeds and pesticide maker Syngenta, will promptly start preparations Read More
Rendering of Syngenta Seedcare Institute expansion
Seed/BiotechExpansion Of Syngenta’s North America Seedcare In…
February 4, 2016
As demand for seed treatment knowledge and products grows among farmers, retailers and others in the seed industry, Syngenta is Read More
Soybean Field
Industry NewsArysta LifeScience Strengthens Sales Team
February 4, 2016
Arysta LifeScience North America recently announced three new personnel additions: Jake Cook and Peter White are Territory Sales Managers for Read More
Davor Pisk Syngenta COO
Crop InputsSyngenta COO: Why ChemChina Offer Beat Monsanto’s
February 4, 2016
Syngenta Chief Operating Officer Davor Pisk says he is confident the proposed acquisition by ChemChina will ultimately help preserve choice Read More
Young corn plants in soil
Crop InputsKoch Biological Solutions Invests In Pathway Biologic
February 4, 2016
An affiliate of Koch Biological Solutions, LLC has acquired a minority equity position in, and entered into collaboration with, Pathway Read More