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Combine record farm incomes, a bright, sunny day and a new, semi-permanent show site and you have the makings for an outstanding opening day at the 2008 Farm Progress Show here in Boone, Iowa.
Cars are still streaming in and the crowds look really good at the site, which features the same kind of weather-proofing the Decatur, Ill. show site has - semi-paved roads, real bathrooms, drainage - all the comforts of home when you think about it. While the corn harvests probably won't happen this year due to late planting and low heat degree days in the central Iowa region, everything else looks to be what you might expect from the Super Bowl of Agriculture.
Farm Futures Marketing Analyst Arlan Suderman (left) had a full house of farmers listening in when he gave his first seminar this morning on how to profit in an election year. In fact, Suderman says farm policies may be the biggest factor in future farm income. "Neither presidential candidate is particularly pro agriculture, and both are subject to changing political winds," he told his audience.
One policy that is definitely pro agriculture is the ethanol mandates, i.e. the Renewable Fuels Standard that says the U.S. fuel supply should have 9 billion gallons of renewable fuel in 2008. That was challenged earlier this year by Texas Gov. Rick Perry, who wanted the mandate slashed in half because he thought it would lower food and feed prices. The EPA said that won't happen, but as Suderman points out, there's a good chance others will make similar challenges in the future.
The idea of slashing the mandate actually makes no sense in a demand-based commodity market like this. Why? Simple supply and demand. According to Farm Futures models, if the mandate had been slashed in half, corn prices would drop to around $3.15 per bushel. It would give a short term boost to corn supplies. But with expensive input costs, it would also make farmers grow other crops - you can't make money today with $3.15 corn.
Suderman says a cut in the RFS would drive 6 to 8 million acres of 2008 corn into other crops in 2009. What then happens to supplies? They go down. "U.S. stocks would be tight again within 12 to 18 months as a result," he says. And with demand from China and other Asian ecnoomies still roaring ahead, corn prices would be back to new highs before you know it.
In effect, the world can no longer afford cheap corn as farmers ramp up and reinvest in production agriculture. As long as Asian economies continue unabated, we will be in this demand driven market that needs more grain of all kinds.
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