Bio-fuels Continue To Mold Our Agriculture and Food System

It is the week before the big event.  What you say?  Next week at this time we’ll be on the brink of the one of the biggest USDA reports ever.  When USDA comes out with its acreage figure for on March 30th, we’ll finally know what’s being going on in the mind of the American farmer.  Is it corn, corn, corn, or has soybeans successfully defended its turf over the last few weeks to keep the corn bulls at bay.

I’ll leave that up to next week.  I know most of you will be chewing on that one all week.  Hopefully you’ll have a grain position strategy which you are comfortable with.  Trading off corn versus soybeans hasn’t been this much fun in years.

In the meantime our agricultural policy world is trying to deal with higher grain prices.  There are a plethora of theorists out there making who are growing delusional about ethanol and bio-fuel.  In fact its getting so wacky I’m having trouble separating the grain from the chaff.  Surely next Friday’s USDA report will bring a little more certainty to the situation.

However it is what it is.  Bio-fuel has changed our agricultural markets from what we’ve grown accustomed to.  I say it often.  It cannot be ignored.  Adjusting to this new reality will surely challenge many traditional corn users.

We already seen that to some extent in the American livestock market.  Cattle and hog producers are being seriously challenged The March USDA estimate of cattle and calves was down 3% from February.  Hog numbers are still expanding moderately in the United States, bucking the trend to curtail production.  The point is corn users are straining under pressure of prices forged by ethanol.  Finding a way through this maze is becoming very challenging.

It may be translating to higher food prices.  I know this might be hard for many of you to believe.  As farmers we’re very used to a situation where we simply produce more and more of any particular commodity.  However, the United States is unlike Canada in one very important area.  They are growing naturally while Canada needs immigration to keep our country afloat.

Ok, I hear you again.  What you say?  One of the reason US pork production is still expanding even with high corn prices has to do with the US population.  The United States has one of the highest birthrates in the developed world.  What’s this mean?  Simply put our American friends are filling up there country by having more children.  This translates into burgeoning food demand which is showing up in pork demand in the United States.

Canada on the other hand relies on immigration to keep this country full.  It works, but not as well as having a captive population having more kids.  Our food demand is more stagnant, althought Canadian consumers are demanding more value in their food choices.  The problem with this from a farm perspective is big corporations make the money by adding value.  Canadian farmers are disadvantages by the remaining stagnant Canadian food demand.

So regardless the ethanol/bio-fuel freight train is barreling down the tracks.  Higher food prices may result but at least in the short term its not hurting farmers.  How long that can be sustained in a hot dry, droughty, short crop year might be another question for the late fall, early spring of 2008.

Into this mix stepped Canadian finance minister Jim Flaherty last week.  In a federal budget which redefined government spending, a couple subsidy crumbs were thrown toward Canadian biofuel.  $1.5 billion was thrown toward the Canadian bio-fuel industry.  How this will be manifested is not totally determined.  However the scuttle butt is there will be a 10 cent ethanol subsidy and a 20 cent bio-diesel subsidy.  The beat goes on.  Even in a country, which produces more oil than it will ever use policy makers are encouraging bio-fuels.

That was surely welcome news for Ontario and Quebec farmers currently mired with a large negative corn basis.  Ontario doesn’t even come close to producing enough ethanol to meet its own government regulated requirements.  Pushing another ethanol subsidy into the mix will surely encourage more production even at a time when corn prices are high.

This Saturday I’ll be gathering with fellow farmers, editors and family to celebrate 20 years of writing this column.  At one point in the celebration I plan on standing up and giving a few thoughts how things have changed over a period of years.  I’ll mention conservation tillage, biotechnology, government programs etc.  However in the end I’ll come to bio-fuel and ethanol.  In my 20 years of writing seeing a “food system” being changed by a “fuel system” wasn’t even on my radar.  Adjusting to it will surely have its share of ups and downs.