Food, Feed, Fiber and Fuel

The new ag paradigm - and how it will affect all of us

by Mike Karst, Entira

The world is changing and fast! Anyone who wasn't aware of this fact before found out this October, when the USDA and the Department of Energy co-hosted the Advancing Renewable Energy Conference. What was so amazing about this conference wasn't the attendees and speakers; it was the overwhelming feeling that the demand for renewable energy — ethanol, biodiesel and wind — is a growing force. And it's going to change everything we know about agriculture.

Will the biofuel boom mean bust for ag partners?

In recent years, fuel price fluctuations have helped spur a biofuel boom. For instance, in the next few years, ethanol production will consume approximately 20% of the US corn crop, producing around 8 billion gallons of ethanol and 23 million tons of DDGs and other co-products. At the same time, biodiesel production from soybeans may consume as much as 11% of the US soybean crop and produce about 8 million tons of soybean meal as a co-product. The impact of these increased consumption patterns will present multifaceted opportunities — and threats — to members of the ag community. How?

For growers, it seems, boom times are coming. Currently, CBOT corn prices are predicted to range from $3.17 to $3.63 per bushel for the next three years. Compare that to the average corn price of approximately $2.05 per bushel for the last eight years, and suddenly, the farmers responsible for our 11 billion bushel corn crop are going to have an extra $11+ billion in gross revenue. But what about other ag concerns?

Poultry, hog and beef producers that rely on a steady supply of cheap corn for feed may have to rethink their operations. They may be forced to adapt their systems to use the burgeoning supply of DDGs and other co-products.

But making significant consumption of DDGs a reality for monogastric species won't be easy. First, seed companies and feed ingredient suppliers will have to step up and provide the required research and development. Ethanol plant operators smart enough to consider their DDG co-products as valuable revenue streams will also need to find ways to meet their livestock customers' needs — and convince them it's safe and economical to use these co-products. (For more on these subjects, check out the latest Entira research study, "Feed, Seed and Fuel: How Biofuel Co-Product Streams Will Redefine the Future of Ag Markets.")

How far out will the boom be heard - and felt?

If you don't produce feed, right now you may be thinking you've dodged a pretty big bullet. But not so fast. Many industries that surround agriculture will be affected by the new paradigm, too.

One of these is the financial services industry that's been a part of American agriculture for the last 100 years. As this industry's customer base rapidly changes, traditional operational and capital loans may no longer meet their customers' needs. And what if several top farmers form an ethanol or wind generation co-op? How many banks will be able to participate in the funding needed to build such a facility? What banks will be prepared to provide their customers with the other, new financial tools they may need?

Members of the machinery segments are facing a shift in their customers' needs, as well. The cellulosic ethanol industry will require tremendous acreage and biomass tonnage — materials and volumes that current farm machinery is incapable of handling. Who will develop the new designs to provide for the efficient harvesting, densification and transportation of huge quantities of materials from the fields to the plants?

Finally, anyone who has to move their products or inputs from one place to another is feeling the pinch. With the increased burden biofuels are placing on our nation's transportation infrastructure, most of us are affected by higher rates and tighter availability. (If you're interested in more on this topic, register for details on Entira's transportation working group.)

We can run, but we can't hide

The message here is: We had all better be ready for changes in our customers and their needs.

Farmers actively participating in the rural renaissance of renewable fuels are going to have increased revenues, and many will expand their operations beyond their farm gates. Some of the major agricultural product and service providers will jump ahead of the curve and radically change their methods to meet their customers' emerging needs and wants. But others will continue to do business as usual and struggle to succeed. Where will your company be in the new ag paradigm of food, feed, fiber and fuel?

Sometimes, it's hard to see the big picture and the potential impact of coming changes. But Entira can help. We have partners and associates with experience in all segments of agriculture as well as biofuels and wind energy projects. If you'd like to discuss how Entira can help you, give me a call at (901)753-0470 or email me at mkarst@entira.net