Will processor agreements, slide in conventional corn provide organic grain price stability for 2009?

If the ethanol boom that helped to shoot up U.S. corn prices in mid-2008 to $7 per bushel—which then ate away at the economic viability of ethanol production—has gone bust, what happens to the promise of strong $3+ conventional corn for the next several years?

The lure of virtually sure profit with conventional corn in 2008 cost the organic sector some acres. For operators just entering organics as an economic niche, why go to the trouble of learning new management when the GM corn-fertilizer-pesticide formula works so well to produce tons of yellow #2 commodity corn? Will the prospect of conventional corn in the low $3s make the  relatively management-intensive path to organic competence seem more worth walking in 2009?

Consider…

1. In his op-ed on the Rodale Institute’s website New Farm section, University of Tennessee agricultural economist Daryll E. Ray explains:

A year ago it looked like ethanol would be using nearly 5 billion bushels in ten years with prices during the ten-year period in the mid-$3.00 range. The high prices were partially contingent on increasing ethanol demand for corn. With the economic crisis and low crude oil prices, ethanol production is projected to use 3.6 billion bushels this crop year compared to year-ago projections of 4.1 billion bushels.

He goes on to wonder whether financially induced construction delays and challenging profitability of ethanol over, compounded with news of advances in cellulose-to-ethanol research and production, will mean as much as 1 billion bushels of expected demand will still be needed.

2. Organic dairy and grain farmer Mary-Howell Martens, of the Finger Lake-area in New York, writes in an Odairy listserve post on Feb. 5:

Grain farmers depend on dairy farmers being able to afford their grain. Dairy farmers depend on consumers being able to afford their milk. Consumers depend on their jobs providing a living wage. When any part of this chain breaks, we all will suffer. In this rapidly changing economy, it is really difficult to know when we will reach a point when a critical piece breaks, resulting in unexpected consequences. It may be even hard to recognize the critical pieces until they go. In any economy, usually it is not sustainable long-term if one essential group benefits at the expense of another essential group.

In previous times of livestock and grain price extremes, in either direction, she often writes, “We all do better when we all do better.” [Emphasis imagined on my part.]  Often sharing a byline with Klaas, her husband, they also operate an organic feed mill, placing them smack in the middle of crop people and livestock people. She argues for moderation in pricing, still hoping that organic producers can find a mechanism to tilt toward mutual benefit with greater stability rather than settle for the cyclical profit-taking of the conventional market.

3. From his perspective as an organic farm manager-grain marketer in eastern Pennsylvania,  Jeff Moyer says, “The outlook for grain on the organic side seems to be steady in terms of prices paid to farmers. The milk coops are signing futures contracts at good prices even as conventional prices fall through the floor. This should mean that grain and feed prices can be maintained.” Moyer, who is farm director at the Rodale Institute, is in contact with farmers and farm groups across the country as he conducts business as the 2009 chair of the USDA’s National Organic Standards Board. His observation:

“Most organic farmers I speak to are optimistic concerning their price support,” he reports. “That being said, I think the trend of double-digit growth for the organic market overall will drop or even flat-line for 2009. This means that new producers coming into the market place without a strong marketing plan may have trouble selling what they produce.”

The coming months are uncharted waters, as Moyer notes. After a 20-year period of fair to good growth, most organic sectors will join organic dairy producers in coping with contracting demand.
This shift might be incentive enough for new initiatives in cross-sector (grain-livestock) innovation to make sense that didn’t when things were better… or at least seemed like they might be heading that way. ~ Greg Bowman