Deere Downturn: Is Ethanol to Blame?

Source: By PAT BLANK, Iowa Public Radio • Posted: Monday, February 2, 2015

Between 2010 and 2013, Iowa and much of the Midwest saw record prices for land, corn and soybeans. However, a University of Northern Iowa economics professor believes enthusiasm over the potential profits of ethanol may be partly to blame for the recent downturn.

“Well, I’m one of those people that believe that was driven by ethanol. As you know, we built a number of ethanol plants over that period, mainly because of the subsidies that Congress was giving on ethanol production,” explains Fred Abraham, head of the Departments of Finance and Economics at UNI. “Well, we build ethanol plants, we take corn, and make ethanol out of it. It drives up the price of corn. You drive up the price of corn, you drive up the price of land. You also have farmers making high incomes and buying a lot of tractors.”

Abraham says falling commodity prices and low gas prices have made ethanol less attractive. Thus, lower ethanol  demand leads to lower grain prices, and prevents farmers from purchasing new farm equipment.

“Lately what we’ve seen is a decline in production and a decline in the demand,” Abraham explains. “We’ve even had ethanol plants closing in Iowa and they’re relatively new plants.”

Abraham admits it’s unlikely that ethanol prices will prop up grain prices any time soon.

“We need the farm economy to recover again if we want Deere and all of Deere’s suppliers to get back to where they were,” says Abraham. “It’s going to take a while, I think.”