‘‘The ethanol market is here to stay,” says Randy Coffee, marketing director for Sukup Manufacturing in Iowa, a Midwest giant in the grain bin/grain handling industry.
That’s good news for companies like Sukup and for farmers who can’t seem to grow too much corn and grain these days. Manufacturers and suppliers of farm products are reaping the rewards, too. But is it all good news?
Dick McInturf of Chief Agri division in Kearney, Neb., isn’t so sure. After an initial “boom” and a lot of excitement and optimism that turning grain into ethanol would be part of the solution to the world’s growing fuel concerns, McInturf calls it a “Catch 22” situation.
With the rapid rise in the price of corn pushing up other costs, McInturf says plans for some big ethanol plants are put on hold because corn got too expensive to make it practical for the ethanol market. Now the price increase is overflowing to food markets, and is seen in many other places, affecting the prices of fertilizer and fuels.
“It’s not what’s going to solve our energy situation,” McInturf says of corn-based ethanol.
Coffee, too, says while times are good now for those growing corn for ethanol, “it has to slow down eventually.” At Sukup, he says, “We are in a situation where, like other storage companies, we are seeing a huge push of business.”
Yes, but what’s next?
The surge, he says, is the “biggest I’ve ever seen in the industry — ever,” he continues, mentioning the demand for grain dryers and material handling systems. Coffee, who’s been in the business since ’73, says the growth is exceeding all projections.
So while that’s good for the grain-storage business and good for the prospects of reducing dependence on petroleum-based fuel usage, Coffee says he’s worried about what it’s continuing to do to other market sectors.
“The concern I have at this point is, with reduction in planted acres for ’08, it will drive the price of corn up even higher, to where it’s not profitable for ethanol facilities. In addition, he says, while farmers are getting top dollar for commodities, it continues to drive up food prices.
As McInturf says, that’s already happening.
Selling storage facilities for grain “is our bread and butter,” McInturf says. Currently, the huge horizon-dominating commercial bins are selling well, he says. So are on-farm storage bins.
“The farmer wants to hold his grain until he can sell it to make the best profit,” McInturf says, and he is putting those earnings into buying big-ticket items and upgrading the farm.
Yet, there’s a lot of concern about how long this trend can continue.
According to a recent story in the Indianapolis Star newspaper, Indiana farmland prices have zoomed to more than $4,000 per acre. Coupled with soaring prices for soybeans, wheat and other farm goods, farm incomes in the Hoosier State and other Midwest Farm Belt states have been boosted by up to 50 percent in the past two years.
But while farmers have more cash to spend, their own living costs have risen, along with the cost of living increases experienced by people all across the U.S. There’s hardly a consumer alive who hasn’t notice the rising prices of everything from milk to meat, cereal and cookies.
Even with lower interest rates, people who tend to be more cautious and conservative anyway are being careful as they make decisions about big-ticket commitments.
Add the words “layoffs” and “recession”” to the vocabulary, and yellow caution flags fly from coast to coast.
Finding a balance
The other cautionary side of the picture is the price of steel. With steel prices up dramatically — “through the roof,” as many people put it, that affects the grain bin market, too.
“We can’t seem to find a balance,” Coffee says, agreeing that the current surge will correct itself, level back down to where it should be, “maybe in a couple of years.”
In the long run, perhaps too much of a good thing is too much of a good thing, agree Coffee and McInturf. n