“Biofuel producers diversify away from crops” – St. Louis Business Journal, 14 June 2013

There are three key industries that rely on corn: biofuel/ethanol, pork and fructose corn syrup. However, erratic corn prices are forcing biofuel and ethanol producers to diversify, and most are moving to lower-cost non-food and food feedstocks, such as waste vegetable oil, tallow, algae, waste sugar, corn cobs, wood waste and swtichgrass.

This means that some production plants have underwent modifications in order to use these other feedstocks, and while that can be pricey, it has certainly paid off. The biofuel manufacturer FutureFuel has seen considerable gains since introducing alternative feedstocks: in 2011, the company’s biofuel revenue was $141.6 million; in 2012, the company increased this revenue by 35% to $191.4 million.

Last year’s drought yielded a low corn harvest and was detrimental to ethanol manufacturers, who had to downsize production for the first time in 16 years. This year’s harvest is looking to be better, but ethanol and biofuel companies might opt for cheaper feedstocks instead.

This shift is bound to have a significant impact on the corn industry, and we are likely to see an supply of corn that the pork and fructose corn syrup industries can’t cover. We will probably also see noticeably decreased prices, which will, in turn, put more pressure on corn farmers to increase prices to make up for last year and future losses.

This a a true example of classic economic theory at play, where “supply and demand”, along with substitution in competing markets, affects commodity prices in a somewhat unpredictable manner.

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

June 18, 2013

Fluid Management Systems

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www.fluidmanagementsystem.com     subodh@fluidmanagementsystem.com

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“Genetically Modified Crops Have Led To Pesticide Increase, Study Finds” – HuffPost, 1 October 2012

Genetically modified crop (GMC) technologies have forced farmers to use more hazardous pesticides to tackle weeds and insects. GMCs, which are meant to improve plant growth and help farmers resist pests that harm plants, are actually working in reverse: GMC technologies have spurred the development of “superweeds” and “hard-to-kill” insects.

According to a study by Washington State University research professor Charles Benbrook, from 1996 (when pesticides were first introduced) to 2011, GMC use increased pesticide use by 404 million pounds. Also from 1996-2011, herbicide use increased by 527 million pounds and insecticide use increased by 123 million pounds.

In 1996, Monsanto introduced the first GMCs, herbicide-tolerant crops called “Roundup Ready” soybeans, crops that are engineered to endure Monsanto’s herbicide. Monsanto soon used the same technology for corn and cotton.

As of recent, dozens of Roundup-resistant weed species have developed, driving farmers to use more pesticides and chemicals to control these ‘super-weeds’. In the same vein, genetically modified corn and cotton, which are supposed to be poisonous for particular insects, has prompted the growth of ‘hard-to-kill’ insects.

GMCs largely control the US agricultural landscape: an estimated one of every two acres of harvested land has GMCs; and almost 95% of soybean and cotton acres, and over 85% of corn acres, are genetically modified.

The use of GMCs has the same pluses and minuses as the use of drugs for raising food  animals such as swines and bovines. We need to use antibiotics and antibacterials to protect animal health so that we can provide concentrated meat to feed 7 billion people. Excess use of these medications may lead to more resistance in humans.

Judging from the conflicting viewpoints of consumers who want safer and cheaper food, and regulators who want to protect public health, what can farmers do to satisfy consumers and regulators, while also guarding against rising costs? Perhaps there is a solution in better communication between crop and food scientists, farmers, GMC, and pesticide manufacturers and regulators.

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

January 24, 2013

Fluid Management Systems

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“Traders Sow Bets on Higher Wheat” – Wall Street Journal, 15 January 2013

Like our previous post on rising milk prices, wheat prices, too, are on the rise; and this past summer’s drought is to blame.

Pricing on corn and soybean skyrocketed to new records after this past summer, as the drought devastated massive amounts of both crops. Due to continued low rain- and snow-fall, many traders are betting that major increases on wheat prices will, again, occur during the next wheat harvest.

Last week, the NOAA confirmed that 2012 was indeed the hottest year on record. Kansas, the largest producer of wheat, and the southern area of the US called The Great Plains, are still plagued with drought conditions; since summer, soil moisture has greatly diminished, which is a necessity for healthy wheat-crop growth. And recent weather forecasts are not raising hopes.

Wheat prices have increased by 5.1% since the USDA reported that quantities of wheat are less than expected. Traders trust that wheat prices have reached the bottom of the well; however, a continued poor harvest for the US, the largest manufacturer of wheat in the world, could further constrict supplies. A recent survey by the USDA shows that 26% of this year’s wheat crops are “poor” or “very poor”, suggesting that much cannot be reaped from these crops.

The drought has been disheartening for farmers, causing some to plant less wheat this past fall. Additionally, due to low supplies of corn, a main ingredient in animal feed, farmers are going to use more wheat in their animal feed this year. Both of these issues could very well cause a further tightening on an already dwindling wheat supply.

Russia and Australia, two main producers of wheat, have also been undergoing harsh droughts and yielding damaged crops. If record-high springtime temperatures continue, then rain will be a large necessity come March. Major wheat-producing countries are in dire need of some favorable weather this harvest season.

Nobody can control weather and drought, but we can influence factors which affect  weather and climate, especially if they are effected by human actions. It takes a long time to influence climate; therefore, we need to start now on meaningful climate change policy initiatives. It’s not about ideology, it’s about dollars, cents and wheat prices.

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

January 17, 2013

Fluid Management Systems

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“Across Corn Belt, Farmland Prices Keep Soaring” — New York Times, 22 October 2012

This year, the US experienced its worst drought in over 50 years, destroying corn and soybean crops across the Corn Belt. Surprisingly, regardless of the drought, farmers are continuing to invest more in planting. Taking advantage of low interest rates, farmers are snatching up land, rather than investing in stocks and bonds.

Even in our tough economy, farmland prices – with the exception of the recession in 2008 – have doubled since 2005. Banks are worried that the same thing that jumpstarted the recession will occur with farmland to create a “farmland bubble”. But such a bubble is far from farmers’ worries; farmers are more concerned about growing their businesses so they can produce more crops and increase their income. Rather than buying stocks or leaving their money in the bank, many farmers feel that investing money in farmland is more practical.

The demand for farmland is high, which has caused some banks to worry that farmers will make poor choices. Such was the case in the 1970s and 80s, when many farmers were piling up more debt to acquire more land, and using their farms as collateral. The debt inevitably left many farms in ruin and led to sinking land values.

The drought has caused a surge in soybean and corn prices, probably a main factor in the farmland boom. The Department of Agriculture has reported that the likely net farm income for 2012 is $122 billion, a 4% rise from the $117 billion in 2011, the record net income level since 1973.

Farmers have less debt then 30 years ago. Low interest rates also make borrowing less expensive, which can be helpful for farmers; but farmers might be in trouble if interest rates rise and crop prices fall.

The question to answer: since farmers have continued to invest in land, will we see a reemergence of plummeting land values? And what happens if, in 2013, farmers have to suffer through another drought?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

November 12, 2012

Fluid Management Systems

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“Drought’s Grip Is Wide, Deep”- Wall Street Journal, 4 Sept 2012

Though Hurricane Isaac brought relief to one of our driest summers, the drought still has the capability of slowing our economy.

Farms have faced the brunt of repercussions, severely effecting corn and soybean crops, and increasing prices of feed for chickens, hogs and cattle. Many cattle ranchers and dairy farmers have found it cheaper to slaughter their livestock, which, in turn, affects food companies’ profit margins. According to the Department of Agriculture, food prices could climb 3% to 4% from 2012-13. Food prices rose from 2.5% to 3.5% in 2011-12.

Among other price increases is the growing cost of gasoline. Ethanol, a corn-based fuel that is mixed with gasoline, is a likely source of mounting gas prices. Gasoline prices are now around $3.78, having risen over 40 cents since July.

Regardless of the drought, farm incomes will grow 3.7% this year, to $122.2 billion. This is partly due to elevated prices of corn, soybeans and land, which are compensating for any losses. This, however, hasn’t widely stirred economic growth.

Recent rains cannot undo damages incurred, but may be able to facilitate next year’s soybean crop. Our current economic situation could worsen if moisture isn’t restored for next year’s growing season.

The question to answer: Will inflated food prices cause consumers to spend less on big ticket items, such as flat screen TVs and computers?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

October 10th, 2012

Fluid Management Systems

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“How to Live High on the Hog During a Drought” – Wall Street Journal, 4 Sept 2012

Droughts can severely affect the lives of farm animals; livestock are often slaughtered if their living costs increase too rapidly. Farmers look at the situation economically, and sometimes selling an entire outfit makes more sense than continuing to run the show.

According to the National Climatic Data Center, 2012 has been the hottest year on record. Our summer was unfailingly warm; since June, corn prices have grown 41%, while soybean prices have grown 33%. On the same note, prices for hogs and cattle have dropped 19% and 8%.

There is a rise in the slaughter rate – the rate for hogs has shot up to 16%, when, at this time of year, the rate is usually 4-6%. The drought has raised livestock feed prices, persuading farmers to liquidate their assets.

In late 2007 and mid-2008, grain doubled in price, which pushed farmers into thinning their herds. The monthly average of slaughtered hogs increased to 10 million, from a steady rate of 8-9 million. However, the price of hogs recuperated in 2010-11.

The question to answer: how will our hand in climate change continue to affect the cost of food?

Conceived, Developed and Written by Dr. Subodh Das and Tara Mahadevan

October 10th, 2012

Fluid Management Systems

Copyright 2012   All rights Reserved by Fluid Management Systems, Inc.

www.fluidmanagementsystem.com     subodh@fluidmanagementsystem.com

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