By ANN HINCH
Assistant Editor

LONDON, Ohio — Location and cost may drive some farmers to switch from planting corn to more soybeans next spring, not to mention a projected need for more beans because of lowered global reserves.

“The key thing to realize, we’re still going to end up very tight in corn, even tighter in beans” on ending stocks, said Matt Roberts, associate professor with The Ohio State University’s Department of Agricultural, Environmental and Development Economics.

Counter weather patterns this year have delayed planting and crop development, and high winds left over from Hurricane Ike over a week ago broke some cornstalks and laid others flat. Experts have had “spirited discussions” about whether late rains can still help the top pods of soybeans at this date, Roberts said.

Difficulties in Brazilian beans might also drive world price enough to make planting more in the United States attractive in 2009. He explained there is land in Brazil, but poor transportation from the interior of the country to ports means there may be fewer soybeans planted this winter.

“In any given year, exports tend to be driven more by our competitors’ production,” he said.

Roberts’ opinion is that growers who live within 30-40 miles of an ethanol plant may find corn is their best crop for storage, since those seem to pay a 10- to 15-cent basis improvement over traditional grain buyers. Living outside that radius, it might be better to grow soybeans.

As for wheat, he said it is “more of a mess” than a year ago. Global wheat production and stocks are seen as plentiful this year, and while just two years ago it was a financially stable crop – with a basis rarely more than a dime from its futures prices – as of last week there was, for example, a $2 basis in northwestern Ohio. “Every single textbook … says this simply can’t happen,” Roberts said, “and yet, it’s happening.”

Soft red winter wheat could be up to a $3 basis next year, for all he knows, at this rate. “It can get worse; it definitely can get worse.”
His advice? Ohio farmers could stand to plant 200,000 fewer acres of wheat this winter. “Give it a rest for a year,” he explained.

All that said, Roberts admitted economists are less conservative than farmers about change – in other words, they think farmers change their crop rotations more often than they actually do.
At last week’s Farm Science Review in London, Ohio, while Roberts gave this presentation, a farmer pointed out Roberts had said he didn’t think soybeans would get up into the teens on price in 2008. “Can you prove I said ‘No way?’” Roberts joked, to laughter, but added, “I actually made much worse calls on wheat.”

As for whether soybeans could hit a score per bushel, Roberts said again, he doubts it under normal conditions. “I don’t think we get to $20 without some serious weather interruption,” he explained.

Biofuel

Related to grains and their prices is biofuel. Corn ethanol is of particular interest – and Roberts said many plants right now are not covering their debt service and are operating just above shutdown level, despite the fact they’ve converted more than one billion more bushels of corn into ethanol this year than in 2007.

“It is likely we will see no more plants started unless things change dramatically,” he said, adding that as the price of corn has fallen over the summer, so has the price ethanol plants will pay.

So has their profitability. Roberts explained that ethanol prices are tied in with crude oil per barrel, which is tied to the strength of the U.S. dollar. When the dollar strengthens in the world market – as he said it has been doing over the summer – the price of oil goes down.

(Roberts took a few moments to explain the gas price increases in the wake of Hurricane Ike was not because of direct damage to Gulf of Mexico area refineries, but likely because of lack of electricity after the storm to operate the pumps, water-inundated equipment, lack of personnel to operate them and pipeline damage. He said lack of electricity in parts of Ohio also may explain some high pump prices or shortages.)

As oil goes down, so does the price of ethanol. Despite this, he said the federal renewable fuels standard is slated to keep increasing each year until 2022. Unless the feds back off of that, if production capacity in this country isn’t increased, ethanol (and perhaps other types of biofuel) will have to be imported.

The recently passed farm bill cut the federal tax credit for ethanol from 51 to 45 cents per gallon, and will be reexamined in 2010. “I would be very surprised to see that go away,” Roberts said, guessing it could be cut to 30-35 cents at the lowest, since among federal legislators, he explained energy security trumps worry about rising food prices.

Also in 2010, the import tariff on ethanol expires and Congress must look at renewing it. “I’m not going to predict which way that goes,” he said, “but I expect both to survive in some form.”
Cellulosic ethanol presents a logistics challenge, Roberts said.

Right now, the chemistry and processing capability on a big level is just not there – he explained it would take 1,000-1,500 trucks full of woody material each day to produce as much ethanol as is made at the Bloomingburg, Ohio, ethanol plant (annual capacity is 110 million gallons). It may eventually become feasible for areas of the country that can provide perennial woody material for processing, however, such as the Southeast. “We’ve been five years away (from large scale processing) for 30 years,” he said, “but I think we’ll get there.”