Higher grain prices expected to boost state's growers


November 12, 2006|By Ted Shelsby

By many measures, it has been a good year for Maryland grain farmers. But even better times might be just around the corner.

Grain prices are on the upswing, and farmers could be selling wheat next year at prices they have not seen in nearly 20 years.

That was one of the main messages delivered at the University of Maryland's 10th annual agriculture outlook conference held recently at the Beltsville Agricultural Research Center.

"2006 was a good year for grain farmers, but 2007 should be better, much better," said Kevin McNew, a speaker at the all-day conference. McNew is president of Cash Grain Bids Inc., a Bozeman, Mont.-based commodity research firm, and an adjunct faculty member of the university's College of Agriculture and Natural Resources.

The outlook for corn and soybeans next year also is promising, but the picture is not as rosy for dairy farmers, hindered in part by grain farming's good fortune.

McNew predicted that the USDA's recent forecast of a 60-cent jump in corn prices next year (to $2.60 a bushel) would miss the mark by a good margin.

"I think you are more likely to see an increase of $1.20 or higher," McNew told the audience of about 100 farmers and agriculture officials at the conference. "I think you will see the USDA increase its estimate next month."

McNew attributed the projected jump in corn prices to the growing use of the grain in the production of ethanol, a gasoline alternative.

National production of ethanol increased 150 percent from 2000 to 2005, and production is expected to reach nearly 5 billion gallons this year, an increase of 25 percent over last year's output.

More than 100 ethanol plants operate in 22 states, mostly in the Midwest, and 42 more are under construction.

A few years ago, the primary interest in ethanol was among farmers and farm cooperatives looking at building plants to produce 40 million to 50 million gallons of the fuel a year and develop new markets for their grain, McNew said.

"Now all of that has changed," he said. "Wall Street companies are putting up big dollars to build 10 plants, each producing 100 million gallons" of ethanol annually.

The movement has been driven by economics. Ethanol was so profitable earlier this year that companies could recover the $90 million construction cost of a new plant in six or seven months.

Farmers growing soybeans also are likely to see bigger returns next year, though agriculture officials warned that profits could be hampered by a disease.

The USDA is forecasting that soybean prices will reach nearly $6 a bushel next year.

"I would not be surprised if the price hit $7 in Maryland," McNew said. That would be the highest price since 2003, when drought in the Midwest reduced the size of the crop and prices reached $10 a bushel.

An infestation of Asian soybean rust could have a significant impact on soybean farmers' earnings, McNew said.

The contagious fungal disease can reduce a soybean field's yield by as much as 80 percent if left untreated. It was discovered in Louisiana three years ago and has been creeping north, getting as far as Virginia this year.

The disease can be treated with a chemical spray, but that would cost about $1 for each bushel of beans, McNew said.

According to the USDA, the price farmers get for wheat is expected to jump 20 percent to 35 percent next year, to $4.10 or $4.60 a bushel. McNew expects the price in Maryland to be higher, perhaps between $5 and $5.50 a bushel.

The good times shared by grain farmers will have an opposite effect on dairy farmers, who buy grain to feed their cows. The cost for grain is expected to rise, but milk prices are not expected to keep pace.

Christopher Galen, a senior vice president of the National Milk Producers Federation, predicted a slight rise in milk prices over the next decade. He said annual prices will probably average $13.50 to $14 per hundredweight over the next 10 years.

"We will see some great years and some poor years," he said, but the average price will be close to what farmers were getting 20 years ago.

Responding to a question from the audience, Galen agreed that it would become increasingly difficult for dairy farms to remain profitable and yet keep pace with rising production costs.

Since 1991, nearly one-third of the dairy farmers in Maryland have gone out of business, and Galen said he does not expect that trend to end soon.

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