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| The real story is not just ethanol. It is India, and to a lesser extent China. Plus the fact that droughts are cyclical and we are due. But no farmer should base his acres on anything other than price and cost, and the best guess on price we have now is the futures market, which probably only favors a slight increase in corn acres for next year. Other trends:
- The short term equilibrium price for oil is probably closer to $40/barrel than $70, barring crazy politics. (And the political trend for war is negative in this country.) There is no cure for high prices like high prices. Three dollar corn may work at forty dollar oil, but four or six dollar corn - no way. (But growing corn will be cheaper too.)
- China has been the engine for much of the grain bullishness, both in their increased energy consumption and improving protein sources in their diets. Some believe that China is due for an economic hiccup, which would only be healthy for them in the long run. Even then, it probably just slows the growth in their demand for energy and protein.
- India is the real story. They are where China was fifteen years ago - poised for an amazing increase in the size of their middle class. Five hundred million people who will be able to afford cars, dinners out, etc., etc., etc. They will set the floor on energy and protein prices. (Outsourcing is a wonderful thing, isn't it? :) )
- Two trends driving high cash rents now are 1) the high cash flow, low risk environment of current government programs and 2) technology which is making 5000-25,000 acre grain farms manageable. Neither of these trends is at risk for the forseeable future. Sure, farm programs will evolve, but the dollars and the risk tools are probably not going away.
- Finally, getting all bulled up over perceived conditions five years out, and leveraging yourself to the hilt for the big payoff, is a great way to go broke. It is the classic 1970's scenario all over again. The world has a way of changing in ways we don't expect. And long anticipated shortages never - ever - come to fruition.
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USDA: More corn needed for ethanol
