Texas economist: grain outlook best in 20 years

Grain producers can look forward to a profitable market for several years, but cattle producers must work through some shocks in the market, a Texas Cooperative Extension specialist said. "The overall outlook for grain producers is the best I've seen it in 20 years," said Dr. Steve Amosson, Extension economist in Amarillo. His outlook:

Ethanol production has raised corn use 500 million bushels in the last year, Amosson said. If planned ethanol plants all come on line, corn usage could increase another 500 million bushels.

"In fact, in order to meet the proposed goal of producing 15 billion gallons of ethanol, we'd need to increase in corn acreage somewhere between 21 (million) to 23 million acres nationwide," he said. "We're already hearing from some seed dealers who said early corn sales are up 25% to 30% this year."

Wheat is ringing up high prices for producers for a different reason, he said. Production throughout the nation and world has been short. "So producers can lock in prices around $4.50 per bushel for this year's crop, as well as next year's," Amosson said. "There's definitely an opportunity in wheat to make a profit, considering the typical price is $3.05 per bushel in this area."

What about water and fuel? While natural gas prices can wreak havoc with profits, he said the natural gas futures are showing prices to be stable or falling in the next couple of years. That not only affects irrigation pumping prices, but also fertilizer prices.

Availability of water was a concern that prompted some producers to switch to cotton to conserve water, but higher corn prices will likely bring them back, at least partly, Amosson said.

"The risk on corn production, to me, is less than that of cotton," he said. "If I had the water, I would do it. If you figure in $50 to $150 profit, above all costs, you don't see many years when that could happen. And we're looking at it for two to three years. It's not hard to make the decision."

Other bright spots in the forecast include rising silage prices on the heels of corn, as well as an the eventual increase in cotton and soybean prices, Amosson said. The corn acreage has to come from somewhere, he explained, predicting it would be from soybean, cotton and some wheat acreage. Shorter supplies of these crops could lead to higher prices in the future.

The not-so-bright spot is with the cattle industry, Amosson said. "They are going to see some heavy losses, especially if they bought cattle before the corn price run-up," he said. The cattle industry will go through some adjustments, he said. Distiller's grains, a by-product of the ethanol industry, will be built into feed rations to help offset some of the corn currently being fed to cattle.

- Source: Texas A&M press release