Demand for ethanol is revolutionizing ag practices.

During a recent series of seminars held in Florida and Arizona for farmland investors, the president of one of the nation's leading farm management companies said the increased demand for ethanol is having huge impacts on farm-based practices and prices.

Loyd Brown, AFM/ARA, President of Hertz Farm Management, headquartered in the nation's corn and soybean epicenter of Nevada, IA, said after a couple of decades of "moderate discussion, enthusiasm and use of corn for ethanol," the usage began taking a significant upswing at the turn of the century. Hertz manages over 1,800 farms, representing more than 400,000 acres, in the Midwest.

He pointed to the steeply climbing demand that has seen corn used for ethanol production skyrocket from 600 million bushels to more than 2.4 billion bushels, an increase of 400% since 2000. Ethanol consumed more than 20% of the nation's corn crop in 2006 and new plants and plant expansions will continue to increase corn consumption in years ahead.

That increased demand is making a number of marks on the agricultural community. Corn prices have nearly doubled, going from $1.80/bu. in January 2006, in central Iowa, to over $3.50/bu. a year later. That trend is having significant ripple effects on other ag issues, such as crop rotation, set-aside programs, non-row crop acres and competition to the Corn Belt from fringe areas.

MORE CORN ON CORN

Brown said, "We're seeing more corn on corn and fewer soybean and cotton acres. We're also anticipating some Conservation Reserve Program (CRP) acres will be turned back to cropland and nontraditional corn states convert crops to corn." The USDA planting intentions report released March 30, showed a 15.5% projected increase in corn acres in 2007.

The ripple continues. "When we see higher corn prices, we see higher soybean prices too because this is now a competitive situation for row crop acres," Brown explained. "That is great news for today's farmers and landowners. They are witnessing higher net incomes, higher cash rents for crop acres and a substantial increase in land values."

Brown pointed out those trends directly impact farmers and his landowner clients' farms, but added that agribusinesses are seeing the effects as well. "Corn and soybean companies are adjusting to more corn and fewer soybeans. Grain storage companies are selling grain bins so farmers can take advantage of on-farm storage and direct delivery to ethanol plants."

Adding to the demand for grain storage is the fact that corn yields are about 185 bushels per acre in Iowa while soybeans might average 55 bushels. For every converted acre from beans to corn, there's a corresponding increase of 3.3 times more demand for storage.

Crop farmers aren't the only ones being affected by the increased demand for ethanol. Livestock feeders are enjoying the increased supply of Dried Distillers Grain (an ethanol byproduct) for feed, which drops their feed costs, particularly if those operations are located near ethanol plants.

BEST OF TIMES

Brown says he sees a future filled with an enhanced competition for corn among ethanol, livestock and export markets. That bodes well for Midwest states featuring corn production. In fact, he even has some concerns that Iowa, the nation's leading corn producer, may become a net importer of grain in as soon as two to three years due to ethanol demand.

The government will spend less money on farm programs as well, pointed out Brown. "Higher corn and soybean prices result in no loan deficiency payments and no counter cyclical payments. We'll probably also see fewer acres in the CRP programs."

Brown says this agricultural resurgence will offer additional employment opportunities in rural communities throughout the Breadbasket of the nation, especially if the livestock industry is maintained.

Adverse effects of increased ethanol demand include the increased on-farm storage will reduce storage and drying revenues from local, rural elevators. Rural elevators will also lose revenue with farmers selling their grain direct to ethanol plants.

In summary, Brown said the increased demand for ethanol is staging a multi-pronged economic revolution throughout agriculture, and it is one that is primarily positive for all members of the agricultural community. The new mega market for agriculture will present many opportunities and may be one of the best economic times for Midwest agriculture.

David Aeschliman is President of Results Integrated Marketing, a strategic marketing communications agency located in Bettendorf, IA.