BY MOUSHUMI ANAND, Medill News Service
Times of Northwest Indiana
Indiana and Illinois may have been slow starters in ethanol production, but the buzz around alternate fuels already is enabling farmers to cash in on the increasing demand for corn. The inherent location advantages of the two states are adding fuel to this fire.
Garry Niemeyer, a farmer in Auburn, Ill., planted almost double the corn he grew three years ago and plans to move all his soybean production into corn in the next few years. This year he planted 1,500 acres of corn and just 800 acres of soybeans.
"Demand for ethanol has taken over," he said, adding that demand for feed corn has increased as well.
The higher demand has pushed up prices significantly. In the spot market the average daily cash price of corn in central Illinois rose from $1.63 a bushel in October 2005 to $2.23 a bushel in April 2006.
Corn futures trading indicates even higher prices ahead. At the Chicago Board of Trade on Tuesday, corn traded at $2.54 per bushel for July 2006 delivery and at $3.04 per bushel for July 2007 delivery.
According to the U.S. Department of Agriculture, ethanol production adds 30 cents to the value of a bushel of corn. The Renewable Fuels Association figures that ethanol production adds $4.5 billion to U.S. farm income annually.
Rising gasoline prices and President Bush's reiteration of the government's commitment to promote ethanol are the main reasons.
Last August, the president signed the Energy Policy Bill that provides tax incentives for producers of ethanol and bio-diesel.
An improvement in quality of seeds is helping, too, by boosting productivity.
"Seed technology has made crops resistant to pests and dry weather," Niemeyer said.
Farmers in Illinois and Indiana are especially well positioned to reap their good fortune. While nationally corn acreage will drop by 2 million acres in 2006, farmers in Illinois decided not to cut production as planned earlier.
So this year's corn acreage will be roughly the same as in 2005, between 11 and 12 million acres.
Indiana farmers are plowing ahead, too. As of May 21, they had planted 77 percent of their corn acreage, higher than the average of 74 percent for this time of the year.
"Earlier, farmers were planning to cut production as corn prices were lower and fuel costs were pushing up input costs," said Mark Lambert, communication director of the Illinois Corn Growers Association. But the high demand for ethanol and the futures prices prompted farmers to plant the same level as last year, he stated..
Both Indiana and Illinois, though they lag behind states like North Dakota and Iowa in ethanol production, are using their geographic strengths to capitalize on the ethanol push.
Niemeyer said Illinois's central location, near the Chicago Board of Trade and the Illinois-Mississippi river system help reduce extra transportation costs. "Most of the corn is transported down the rivers and being in the area helps keep basis low for Illinois farmers compared to those in states like North Dakota," Niemeyer said.
Basis is the difference between the futures rate quoted on the CBOT and what the farmer receives for his crop.
Professor Chris Hurt, an agriculture economist at Purdue University, said that Indiana has the same advantages. Hurt said North Dakota and Iowa offered incentives to their farmers long before Illinois and Indiana did. However, incentives for ethanol production and its increasing demand have made it lucrative for farmers in Illinois and Indiana to increasingly focus on corn production for ethanol.
Hurt added that proximity to the rivers, Great Lakes ports and southeastern cattle rearing states make transportation costs much lower than those for Iowa and Minnesota farmers.
In addition to growing corn, some Illinois and Indiana farmers are joining farm cooperatives to produce ethanol. Niemeyer became a co-partner in Agra-Marke cooperative, based in nearby St. Joseph's, Mo., which is currently building an ethanol plant and has about 100 members.
There are about six ethanol plants in Illinois and two of those are farm cooperatives, according to the Renewable Fuels Association, a Washington D.C.-based national trade association for the U.S. ethanol industry. Thirty more ethanol plants are in the planning stages. Indiana lags behind with only five ethanol plants, none of which is a farm cooperative.