Ethanol’s Era Ending as Bacon Now Brings Profits Home

Source: By Alan Bjerga, Bloomberg • Posted: Tuesday, September 9, 2014

(Bloomberg) — Two lines cross, and an era ends. For the first time since 2005, U.S. farmers this year will make more money from livestock than crops, more evidence that a government-fueled corn boom is over and bacon now rules.

The finding, from last week’s U.S. Departments of Agriculture farm-income forecast, is easy to miss. Corn has been king for almost a decade — with help from Congress, which in 2005 passed the first Renewable Fuel Standard requiring use of corn-based ethanol, then boosted it two years later. That’s driven up crop prices and discouraged livestock, which have been dependent on more-expensive grain and devastated by drought.

Times are changing. With the RFS nearly topped out for corn and the ethanol mandate itself under attack, farmers have fewer ways to soak up higher yields, making it hard to imagine where excess crop production will go, with or without rail cars that have grown scarce as trains haul more crude oil. Cattle raising, meanwhile, seems finally poised to expand after years of declines, and demand is booming for hogs.

“It’s a reversal of fortune,” said University of Missouri at Columbia agriculture economist Pat Westhoff. And it’s one that will require major shifts in assumptions of how farm economics may work over the next few years, as land acreage shifts, farmland costs stagnate and low prices become a bigger threat to profits than natural disasters.

Resolving those issues will take more than an ability to spot crossed lines: Farm groups and policy makers will have to read between them, too.