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Corn Prices, Land Values And World Population
Pat Westhoff provides perspective Aug. 2, 2013 David Bennett | Delta Farm Press What is in this article?: Producers and ranchers take notice: Corn prices are about to settle back down. Corn prices, land values and world population Farmland values, ethanol Corn prices likely to hold steady after dip. World population indeed growing, but leveling off. Farmland around the world still available for production. U.S. ethanol exports to rise? In a wide-ranging mid-July conversation with Farm Press , Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, said he wouldn’t “paint an overly pessimistic picture of the future outlook. The corn price is certainly much higher than we’ve had in the past – just not as high as in the last couple of years.” Westhoff, who recently spoke at a Kansas City Federal Reserve forum on global agriculture, told the crowd “that a lot of people are bit too willing to assume that (prices) can only go up from here, that a rising population and other factors mean that prices will continue to go up and up. “I don’t think that’s at all a safe assumption. If we were to have a larger than expected crop this year, or some other year, we could see a pretty serious downtown in prices.” While world population continues to rise to an estimated 9 billion by 2050, Westhoff said predictions show the number of people added to the world population each year “is expected to decline.” Based on U.S. Census Bureau estimates, “the number of people added to the world’s population averaged about 77 million people per year between 2000 and 2010, and we are projected to add about 76 million per year this decade. That drops to 69 million per year in the 2020s and 48 million per year by the 2040s.” The common belief is that projected population growth itself creates some unprecedented challenge. In fact, “population growth will probably decline in importance as a driver of future demand growth as population growth rates continue to decline around the world. “The real difficult questions are how much per-capita consumption will change in the future, and whether productivity growth will continue at the current rate, speed up or slow down. “To oversimplify a bit, if per-capita consumption levels off but productivity continues to grow at the current pace or even faster, then we should expect lower prices in the future; if per-capita consumption grows rapidly (with income growth and/or biofuel demand) and productivity growth slows, then we should expect higher prices.” Another commonly held belief is that the world’s available farmland is all currently in production. Not so. “There’s additional land which could come into production,” said Westhoff. “We’ve seen a big increase in the overall amount of land used for producing the four major crops over the last 10 years. That’s led to a pretty astounding increase on a global basis. Part of the increase occurs because USDA statistics count double-crop acres. “Get two crops off the same acre, that’s even more production. “That’s happening not just (in the United States) but in China, Brazil and India. I was rather surprised when looking at the numbers that the largest increase in reported acres harvested is actually in India. That isn’t because they’ve found more dirt to farm but because they’re doing a much better job of double-cropping and managing their crops. “Going forward, Ukraine is a place where there has already been some growth and there could be more. The same is true in Russia, where there is land that was in crop production in the past and could come back in with incentives like higher prices and favorable government policies.” Don’t forget Africa. “Nations in southern Africa are also poised to bring increase acreage if the political situation were to improve. “Unless there’s some new driver for demand out there that we don’t currently know about, it isn’t obvious to me that we need to bring in lots and lots of additional land for the next 10, 20, or 30 years. Just ordinary yield growth – if it continues at the recent pace – might be able to accommodate a lot of the demand increase we’re likely to see.” Farmland values, ethanol So, what is Westhoff’s take on farmland values in the United States? Is there really a bubble that some are worried is set to pop? “It’s not just all speculation. We have, indeed, had very strong fundamentals in recent years. There have been very good returns to crop production along with low interest rates. That combination has made cropland worth a lot more than it would’ve been worth 10 years ago. “But it does raise the question of what happens if and when crop prices come back down and interest rates go back up? “I know there are people out there who are firm believers that there has been too much of a price run-up in too short of a time in ways that are not generally justified.” At the Kansas City forum, “this was discussed a fair amount. One of the speakers, Michael Swanson (a senior vice president and consultant with Wells Fargo), talked about this and one of his points was that even if there are arguments for why land prices have come up, we’re not seeing people being as discerning as they should be. Lower-quality land is perhaps being sold for more than it should be relative to good-quality land. “One of (Swanson’s) arguments is that people should perhaps put more money into improving the quality of their land instead of buying more land — tiling, irrigation and the like to make the land more productive. That would provide a better return on investment in the future instead of simply buying more land.” Another of Westhoff’s points is that the future rate of growth depends on public and private investments. Has he looked at that in terms of research funding in the farm bills passed by the Senate and House? “The farm bill itself doesn’t provide a lot of money for research. The actual money for USDA research comes from annual appropriations bills. The farm bill does set the rules of the road for those appropriations. “There have been concerns with the annual appropriations. We haven’t seen the increase in public funding (of agriculture research) that a lot of people like to see. That’s why there are many folks concerned about what future productivity will be in the United States and elsewhere. “There has been an increase in private sector research. But a lot of people are concerned about public sector funding be maintained to ensure that all portions of agriculture receive the support needed to develop future productivity.” If the price of corn drops to, say, $3, how would the ethanol market respond? “For domestic consumption, the real question is whether we’ll be able to satisfy the RFS (Renewable Fuel Standard) in 2014. “And look at the value of a RIN – the certificate required to show compliance with RFS. After the last couple of weeks, the value has been about $1.35 per gallon. That implies we are being forced to discount ethanol sharply to try and get anyone to buy a blend higher than 10 percent. Trying to change that in the near-term is very difficult because of the lack of flex-fuel cars and E-15 or E-85 pumps. “A question that’s been below the radar screen so far is: if corn prices come down sharply, will there be a big increase in ethanol exports? We were a net exporter of ethanol for several years recently. Those exports were rather significant until the drought hit. That could happen again in 2014, although I don’t see us exporting billions and billions of gallons.” Continue reading
The Future of Farming, Part 1: Controlling the Environment
By Ned Madden TechNewsWorld 08/06/13 “We’re in the midst of a global movement, and the demand for locally grown, organic produce has never been stronger,” said Greengro Technologies CEO James Haas, “but the biggest problem is that in our society in the U.S., everybody stopped doing basic food-security things — like, for example, collecting seeds. … “Urban growers have to take personal responsibility for what they grow and eat.” Famine… or feast? Soil… or hydroponics, aquaponics, aquaculture or aeroponics? Nine billion hungry human beings will be living on planet Earth by 2050, according to United Nations estimates. “We will need to produce more food in the first half of this century than we did in the previous 100 centuries combined,” declared Tony Kajewski, an engineering manager at John Deere and president of the American Society of Agricultural and Biological Engineers . http://www.ectnews.c…4&ign=0/ign.gif Along with an increasing population, the world faces climate change, rising fossil fuel prices, ecosystem degradation, and water and land scarcity — all of which are making today’s food production methods increasingly unsustainable, according to “Latest Agricultural Technology Innovation,” a November 2012 report from Kachan & Co. There’s an upside to all this flux and food insecurity, however. The need for solutions is driving important new agricultural innovations — in particular, urban agriculture and indoor cultivation. Farming has migrated from the fields to the cities and moved into the developed environment. Urban Agriculture and CEA Urban agriculture involves growing plants and raising animals within and around cities. Urban agriculture means food production in densely populated areas, and it features many types of production systems, including traditional open gardens, protected environments and hydroponic greenhouses. Indoor farming goes by many names: “all-season farming,” “undercover agronomy,” “commercial indoor cultivation” and “controlled environment agriculture,” or CEA, to name a few. Entrepreneurial types are converting unused factories, warehouses, office buildings and other facilities into urban farms. Many are building new glasshouse greenhouses for that superior mix of natural sunlight and the powerful artificial lights favored in grow rooms. Urban agriculture offers a promising path toward the goal of feeding the planet’s growing — and increasingly urban — population. Many of the tools to make that path viable come from CEA. CEA involves a combination of engineering, plant science and computer-managed facility control technologies used to optimize plant growing systems, plant quality and production efficiency. In addition to indoor crop farming, CEA is used in research at universities and corporate laboratories. It is useful for isolating specific environmental variables for closer study. For example, researchers may study photosynthesis by comparing a crop grown with induction lighting vs. one grown with LEDs. The advantage is that all other factors can be kept constant, reducing the incidence of another influence on the experiment. CEA has celestial applications as well. NASA pioneered “astroculture” by flying a plant growth facility on nine Space Shuttle missions, including one in 1995 in which potatoes were grown in weightlessness. Some of the research on the International Space Station anticipates traveling beyond low-Earth orbit, focusing on meeting the needs of a long-term spaceflight to Mars, for example. A group of engineers at NASA’s Kennedy Space Center in Florida are developing an ISS plant habitat with a large growth chamber to learn the effects of long-duration microgravity exposure to plants in space. CEA is “an integrated science- and engineering-based approach to provide specific environments for plant productivity while optimizing resources including water, energy, space, capital and labor,” according to Gene A. Giacomelli, PhD, director of the Controlled Environment Agriculture Center and a professor in the Department of Agriculture and Biosystems Engineering at the University of Arizona. In CEA, conventional aquaculture (fish farming) has merged with hydroponics (cultivating plants in water) to produce bio-integrated “aquaponics,” a sustainable food production system that mixes vegetable and herb crops and aquatic life in a closed-loop, recirculating, symbiotic environment. “Aeroponics” is a method of growing plants without soil by suspending them above misting sprays that constantly moisten the roots with water and nutrients. Controlled variables include temperature, humidity, pH and nutrient analysis. Aquaponics is essentially an organic hydroponic system, explained Rebecca Nelson, co-owner of Nelson and Pade , which markets its Clear Flow Aquaponic Systems for commercial ventures and other applications. “The plant production part of the system doesn’t vary much from hydroponics,” Nelson told TechNewsWorld. “It is a soilless system. But in aquaponics, we use a natural fertilizer source, which is derived from fish waste. Aquaponics is a fully integrated system that produces both fish and plants.” CEA is “the future of farming,” according to Nelson. “A controlled environment greenhouse protects the crop from extreme climatic conditions and also allows a grower to implement biosecurity practices to ensure food safety.” Lettuce and Tomatoes The four major hydroponically grown plants are tomatoes, cucumbers, peppers and lettuces, which can be grown and distributed within urban communities on a scale that doesn’t work for high-volume staple crops such as wheat, corn and rice. These basics foods for much of the world’s diet are unsuitable for CEA, due to issues like the massive production and distribution demands of the crops. By extending the growing season and ensuring product quality of veggies and fruits, CEA complements but does not replace field crop production. Local CEA practices can make a difference in people’s nutrition and quality of life while enhancing the remediation of resources. CEA and hydroponic-type systems offer relatively inexpensive “farms” for the urban grower who may be but more likely is not a traditional farmer, according to UA CEAC’s Giacomelli. “CEA provides the door into production agriculture for those with a non-farm background,” Giacomelli told TechNewsWorld. A long and productive farm background distinguishes Hollandia Produce , which specializes in the production, as well as the wholesale and retail marketing of vegetables it grows in greenhouses using hydroponic methods. Hollandia “Live Gourmet” brand living lettuces and leafy greens — harvested with their roots intact to preserve freshness — are distributed in 45 states and Canada. “CEA is definitely the way of the future,” CEO Peter Overgaag told TechNewsWorld. “Protecting the crops means less waste and of course more production per acre.” The Great Park AG Kawamura, former California secretary of agriculture, could easily be considered the King of Urban Ag in America. Kawamura is a founding member of Orange County Produce , which farms nearly 1,000 acres in a densely urban county. Kawamura also operates the leased 114-acre Orange County Great Park Farm, where his company grows a variety of fruits and vegetables for the consumer market and for contribution to local food banks. “This is now the largest ag operation in an urban park in the country,” said Tom Larson, the park’s farm, food and landscape manager. “What’s so spectacular is it pays for itself.” With an eye always fixed on the future, Kawamura is planning the construction of hydroponic greenhouses at the Great Park Farm. “CEA greenhouses can provide a new strategy for establishing production capacity inside urban areas where open ground may be scarce, impaired — brown fields — or difficult to farm traditionally,” Kawamura told TechNewsWorld. “They certainly can create new opportunities for year-round production of fruits and veggies in places where extreme weather has made farming impractical.” Food Security = Food Knowledge Greengro Technologies markets both indoor and outdoor aquaponic and hydroponic systems and grow rooms. CEO James Haas emphasizes the importance of philosophy and attitude in any successful urban agriculture initiative. “We’re in the midst of a global movement, and the demand for locally grown, organic produce has never been stronger,” Haas told TechNewsWorld, “but the biggest problem is that in our society in the U.S., everybody stopped doing basic food-security things — like, for example, collecting seeds for growing some of their own food. “If we want to create better urban food sources, we need to better understand our food itself,” he advised. “Urban growers have to take personal responsibility for what they grow and eat — that’s what rural farmers do.” High-tech Exurban Ag Houweling’s Tomatoes operates California’s first large-scale, energy-neutral urban ag vegetable greenhouse, producing a broad range of tomatoes and cucumbers grown hydroponically under glass across 125 acres. “I believe there is a place for urban agriculture, said David Bell, chief marketing officer, for Houweling’s Tomatoes, which is surrounded by farmland. “However, we see the future of CEA leaning towards larger-scale greenhouse farms built to meet a bigger regional area,” Bell told Tech News World. “It’s positioned for reduced but easy access to freight, with the integration of grow lights to facilitate year-round local production.” Still Experimental While they are understandably attractive, urban agriculture and urban farms remain at an experimental stage in the U.S., according to Danilo S. Lopez, principal at Novelle Consulting . “Communities will have to face up to regulatory requirements — relating to effluent discharge, noise, logistics, lighting, etc. — and higher quality labor supply year round on one side — and on the other side, the benefits of fresher products to the community — hopefully at lower or competitive cost to consumers,” Lopez told TechNewsWorld. “The U.S. can be supplied year round by Canada and Mexico with greenhouse vegetables,” explained Lopez. “For large commercial U.S. producers, the tested dependable hydroponics greenhouses should remain popular for the next decade. The jury is still out whether urban hydroponics greenhouse farming will be commercially viable.” The road ahead is not completely clear, however, according to Melissa Brechner, PhD, director of the CEA Hydroponic Technology Transfer Center in the Dept. of Biological and Environmental Engineering at Cornell University , who issued a word of caution to urban ag enthusiasts. “It is NOT true that ‘if you grow it they — restaurants, etc. — will buy it’. We have seen much perfectly grown produce go into landfills because the proprietor failed to sell it,” she noted. “In my opinion, the most important thing to remember is that CEA encompasses an integrated system that includes greenhouse design, environmental control, labor, marketing, management, distribution and consumer demand,” Brechner told TechNewsWorld. “All of the details must be working together, and the failure of any one aspect can bring the entire operation to a halt — bankruptcy.” Growth of Greenhouses World greenhouse vegetable production hit a major milestone in 2012, when the total worldwide greenhouse vegetable production area surpassed 1 million acres, according to the International Greenhouse Vegetable Production Statistics released by Cuesta Roble Consulting. “I predict that greenhouse construction will double in the next decade, completing a paradigm shift worldwide in the way mankind produces commodity fruits and vegetables,” Tim Madden, president of BiodynamicsCEA , told TechNewsWorld. “Instead of altering the genetics of the plants to provide the ability to grow in harsh environments, we change the environment to provide the best growing conditions for the plants.” Continue reading
World Food Demand Climbs But More Competitors Enter Field
Posted Aug. 1st, 2013 by D’Arce McMillan Many countries have the potential to expand arable farmland and help meet food demand. The expectation of big harvests across the Northern Hemisphere this year is pushing down crop prices. It seems to fit with the growing perception among traders that the period of strong commodity prices that started around 2005 is coming to an end. High prices encourage commodity producers, whether they be farmers, miners, oil drillers or metal processers, to invest in producing more. Once the supply-demand situation become balanced, commodity prices fall. Also, China’s phenomenal economic growth, which focused on infrastructure development for the past decade and which required massive quantities of metal, minerals and energy, is slowing. Economies usually slow as they mature and shift from infrastructure and export growth to slower domestic consumer-led growth. As well, demographics resulting from the one child policy mean China’s population is rapidly aging. However, if you have attended any farm meeting in the past 10 years, you likely encountered pundits who said the boom in agriculture was more sustainable. The increasing prosperity of many Third World consumers would cause them to improve their diets, incorporating more protein, mostly from meat. The increasing demands on livestock production meant rising demand for feedstuffs, from corn to oilseed meal, feed wheat to distillers dried grain. The pundits said there wasn’t a lot of new land available for cultivation so this increasing food demand would largely have to be met by increased crop yields. All that still holds true. However, a new team of pundits now coming out the woodwork say that maybe the food shortage thing is a bit overstated. An agricultural symposium this month hosted by the Federal Reserve Bank of Kansas City featured several speakers who said global agriculture has lots of resources to meet the increasing demand for food. Many of the presentations are on the bank’s website at www.kc.frb.org. Ray Wyse, senior director of trading and oilseeds for Gavilon, a multinational agricultural trader, had one of the more sobering presentations. He noted that the traditional annual consumption growth from food and animal feed has not changed much over the past 30 years if you take away the big demand growth for corn and oilseeds from the biofuel industry. Government policy-driven ethanol growth in the United States has plateaued and it appears the same thing is happening in other countries. Wyse disputes the argument that there is little new land to bring into agricultural production. About 136,000 acres, almost all of it outside the United States, have been added to grain, oilseed and cotton production since 2005. He notes that current cultivated land in the former Soviet Union is 74 million acres less than it was in the late 1970s and early 1980s. That is an area about the size of the U.S. soybean crop and could be brought back into production. One of the great agriculture stories of the past decade was Brazil’s huge growth. Its arable land stands at 170 million acres, but the country has the potential to add another 470 million. Africa has huge unrealized agricultural potential, Wyse said. The Democratic Republic of the Congo has similar climate and water resources as Brazil, and it has the potential to add 200 million acres with the potential to produce three crops a year. Although yield growth has stagnated in the U.S. in recent years, the expanding application of modern farming techniques in the rest of the world is leading to annual yield growth in corn of more than 10 percent outside of the U.S. The introduction of genetically modified seeds also leads to rapid yield growth. He noted that the introduction of B.t. cotton in China raised yields by 40 to 50 percent and in India by 70 to 80 percent. There can even be profound change in North America. He noted that the development of short season corn and soybean varieties has caused farmers in North Dakota and Canada to shift away from traditional small grains into corn and soybeans and are harvesting much larger tonnages per acre. The result of all this is that there is a growing list of competitors for the global market. Ukraine, Russia, Kazakhstan have joined Brazil and Argentina, and other export powerhouses might be possible in Africa in coming decades. These countries tend to have weaker currencies than the U.S. and Canada, making their grain cheaper. Also, they have neither the storage nor farm credit systems that give farmers here the market power to match the stream of supply to demand and wait out price dips. Wyse warned that the result of all this is crop price moderation. The follow-on implication is a risk for land prices in the U.S. and in Canada, which have risen to reflect the recent grain price boom. Reading the presentations from the Kansas meeting is a little depressing, but the reaction should be prudent debt and risk management and business planning rather than panic. No one really knows how much food demand will increase as formerly poor societies in Asia advance and become more wealthy. And while there might be lots of land that is potentially available for crop production, it will require enormous on-farm investment plus astronomical investment to tie it into the global export network. Developing that land also has environmental implications. Also, we seem to be moving into a period of more variable climate, which adds another wild card to the forecast. The last few years were exceptionally good ones for North American farmers. Nothing lasts forever, but the future isn’t necessarily bleak, either. Continue reading
