EPA Re-evaluates Popular Farm Chemical
Government officials in Corn Belt states like Iowa and Nebraska announced fresh budget cuts this week – a move analysts predict could drastically slash state services including those for agriculture.
In Washington, the Commerce Department reported the U.S. trade gap narrowed unexpectedly in August to $30.7 billion on slightly higher exports and what some economists label a “cloudy” trade picture.
Imports of autos and auto parts reached their highest figures since late 2008, a notable one-time boost from the federal “cash for clunkers” program.
Crude oil imports fell by 9.4 percent in August as the price per barrel rose for the sixth consecutive month.
And a week-long rally on Wall Street moved the Dow Jones Industrials to its 2009 high.
Despite an uncertain economic future, farmers in Rural America are counting on an all-but-certain positive harvest this fall. Many record yields in the coming weeks were fueled months ago by a bevy of chemical inputs – each designed to maximize productivity and limit pests or invasive weeds. But this week, one environmental agency announced it will reevaluate the possible human health risks caused by a herbicide with a 50-year track record.
The Environmental Protection Agency, or EPA, is re-evaluating the potentially harmful affects of a herbicide commonly used on farms for the past 50 years. EPA’s newfound interest in the chemical atrazine comes just three years after the federal environmental watchdog relicensed the popular weed killer for sale in the U.S.
The announcement comes as combines across the country are beginning to roll on a potential record harvest of corn – a crop commonly supported by the farm chemical. Atrazine can be applied before and after planting to control broadleaf and grassy weeds. Industry experts say nearly 60 percent of the nation’s corn crop is treated with the popular weed-killer. The herbicide also is used on a majority of the sorghum and sugarcane fields across the country.
But critics and EPA claim further scientific study of the chemical is necessary. Recent analysis blames atrazine farm run-off for some birth defects and reproductive issues. Syngenta AG has produced atrazine for 50 years and the agribusiness company says the 40 percent of the world’s food supply would not exist without crop protection products like atrazine. Syngenta spokeswoman Sherry Ford told Market to Market, “If any regulatory changes were made, Syngenta would of course, meet all legal requirements. We expect that the EPA will make its regulatory decisions based on sound science, as it has for the 50-year life of the product. What concerns us most about regulatory changes that are not based on sound science are the impacts on the ability of farmers to provide a safe, abundant supply of food.”
Under the Bush Administration, atrazine was re-licensed for public sale as recently as 2006. But the Obama administration and new EPA Administrator Lisa Jackson have pledged to reexamine various Bush-era decisions pertaining to chemical use.
EPA’s Deputy Director of Pesticides, Steve Bradbury, told Market to Market this week that the decision to reevaluate atrazine comes after fresh scientific studies and water quality investigations by the New York Times. EPA officials claim the review could potentially lead to usage restrictions or a complete ban of the popular farming herbicide. But Bradbury cautioned against making any early predictions, saying: "The approach we are doing is to look at the scientific foundation with old data and the new data. We are not pre-judging the evidence."
EPA officials said any regulatory decision would NOT be reached before December 2010.
A Conversation With POET's Jeff Broin
In Rural America, bright times may be ahead for an energy sector that is chalking up profits in recent months following more than a year of plant bankruptcies and industry consolidation. But barriers and opportunities remain for the next generation of renewable fuels. Market to Market’s David Miller visited with the ethanol industry’s leading entrepreneur and filed this report.
The ethanol industry has been considered by some to be a potential savior for U.S. corn growers and a key element of weaning the nation from its addiction to foreign oil. At the same time, others have blamed America's predominant alternative fuel for increased food prices and deforestation in foreign countries.Currently, the ethanol industry is in a position to offset nearly 10 percent of America’s gasoline consumption. But without an increase in renewable fuel production mandates, ethanol producers claim they'll hit a wall that effectively stops market expansion.
One of the industry's more vocal advocates working to increase the amount of the predominately corn-based fuel is Jeff Broin, CEO of POET, the nation's largest producer of ethanol.
Jeff Broin, POET: "...when I was a child, we set aside large tracts of land, where my father built his first ethanol plant on his farm, because he was setting aside large tracts of land and planting grass on it. It was growing up in weeds and it, as a farmer wanting to produce, it was driving him crazy."
In 1987, Broin Companies began their ethanol business with the purchase of their first refinery in Scotland, South Dakota. In 2007, the company was renamed POET and today it employs about 1,500 people at 26 Midwestern plants which have the capacity to produce 1.5 billion gallons of ethanol annually. But Broin says even POET is threatened by limits on how much ethanol can be mixed with gasoline.
Today, the blend rate for ethanol is set at E-10, a mix of 10 percent ethanol and 90 percent gasoline. Since U.S. motorists consume 140 billion gallons of gasoline annually, a 10 percent limit means 14 billion gallons is the maximum amount of ethanol that can be consumed domestically.
Like most ethanol proponents, Broin believes the industry needs to proceed well beyond the 10 percent blend-wall to survive and grow. To that end, Broin was able to get more than 50 other ethanol refineries to join POET in its appeal to the Environmental Protection Agency to increase the blend rate from E-10 to E15.
Jeff Broin, POET: "Today we have a 90 percent mandate on gasoline in this country. Ethanol, due to the Clean Air Act, can only get to 10 percent of the fuel supply. ...the success of ethanol really plays a big role in the success of agriculture and, you know, today we've had some ethanol plants that have been closed and in a response grain prices have dropped significantly below the cost of production. ...It looks like we're going to be awash in grain with the harvest this year and once again ethanol has the opportunity to balance the grain supply in this country that's been so uneven over the last 20 to 30 years."
Besides the move to E-15, Broin wants to increase usage through blender-pump technology allowing the consumer to choose the amount of ethanol to be pumped into the tank. Currently, only flex-fuel vehicles can legally take advantage of these variable rate pumps.
Broin believes by using more than just the corn kernel, the market share can easily be increased without adversely affecting land use or food supply. Through experimentation at the Scotland, South Dakota refinery company scientists and engineers are learning to squeeze more energy from corn. Utilizing the plant's stalks, leaves and cobs POET has developed a process to make cellulosic ethanol under the name "Project Liberty."
The new technology is designed to work side-by-side with conventional operations. The first cellulosic refinery will be built at POET's Emmetsburg, Iowa plant at a cost of $250 million. Ground breaking is expected in 2010 with the first product available in 2011. Corn cobs, Project Liberty's primary feedstock, have already been harvested from nearby farms using machinery designed by companies like Vermeer.
Over the years, state and federal subsidies have been used to quickly increase the size and capacity of the U.S. ethanol industry. At the beginning of 2009, the amount received from the federal government, often referred to as the "Blender's Credit", went from 51 cents to 45 cents per gallon of ethanol. Despite the decrease, financial support from Washington has been a target of criticism. But Broin is quick to point out the oil industry also is highly subsidized.
Jeff Broin, POET: "$4.7 billion was the decreased tax revenue in 2008 from the ethanol tax incentive. Yet in that year, because of ethanol production, we reduced farm payments by $8 billion--eliminated them. So, we saved the government $8 billion in farm payments. We saw $8 billion dollars in tax revenue generated by the oil industry. We saved the consumer over $40 billion on the price of gasoline by adding more fuel to the supply and we changed the -- added to the gross domestic product by more than $60 billion. So, for a $4.7 billion investment you'd think the government would want to do more of that. That maybe the best investment the government has ever made."
According to a General Accounting Office study conducted in 2000, the petroleum industry received approximately $150 billion in subsidies over the previous 40 years, while ethanol received just $11.2 billion -- more than 92 percent less than oil.
And Broin believes by combining grain and cellulosic production the Midwest could become the equivalent of the Middle East in the next 20 years.
Jeff Broin, POET: "If you look at the doubling of the corn crop, which is projected by Monsanto and DuPont, we literally could produce 50 billion gallons of grain-based ethanol 20 years from today and if you look at a billion tons of cellulose in this country, which will also grow as we produce more crops, there will be more and more cellulose we can produce 80 to 100 billion gallons of cellulosic ethanol 20 years from today. Those two combined could replace gasoline while still increasing our food supply by over 40 percent."
Ethanol gained in popularity during the Arab Oil Embargo of the 1970s, but almost immediately the homegrown fuel was attacked on various fronts. Even today, some critics claim increased ethanol production reduces the food supply, resulting in higher food prices. Others say corn used for fuel in the United States compels farmers in foreign countries to tear-up fragile land to plant food.
Traditionally, ethanol producers have looked to the Renewable Fuels Association, or RFA, to fight public relations battles for the industry. Broin, a member of the RFA’s board of directors, didn't think enough was being done to counter what he believed were unfounded accusations. Less than a year ago, Broin broke from the RFA and formed his own ethanol promotion agency called Growth Energy.
Jeff Broin, POET: "I think we were ill-equipped to battle the food versus fuel issue which was a malicious attack by those trying to protect the status quo. It's been proven that we were a very small portion of any food price increases in the ethanol. In fact energy played a much larger role. Every study that's out there energy played a much larger role in changing food prices. Yet that was put on our back and I think that, without question, our industry got caught flat-footed and was -- was ill-equipped to respond. So, Growth Energy, I think, again, was formed to be the type of organization that can deal with those type of attacks on a pro-active basis rather than a reactive basis and to get the truth out. Our industry needs to get the truth out."
Despite the clamor of critics, Broin's unwavering support of alternative fuels has only grown stronger over the past 20 years. While ethanol has proven to be a wise investment, his commitment to the alternative fuel goes well beyond personal gain.
Jeff Broin, POET: "This, this is truly the one fuel that has the you know help to lead that that change in our world and it's an exciting change and it's a change that will leave a better world for my children and that's really something that gets me up in the morning and drives me in our quest to make ethanol a major fuel for the world."
For Market to Market, I'm David Miller.
Market Analysis: Market Analyst Jamey Kohake
- Download Audio (MP3)
- Subscribe to Podcast iTunes | Other
For the week, December wheat gained more than 26 cents, while the nearby corn contract moved nearly 29 cents higher.
USDA now pegs 2009 soybean production at 3.25 billion bushels with an average yield of 42.4 bushels per acre. For the week, November soybeans moved 41 cents higher and the nearby meal contract gained more than $38 per ton.
In the softs, cotton moved higher with the December contract posting a gain of $2.36.
In the dairy market, Class III Milk futures continued their upward trend with a gain of 68 cents.
But in livestock, October cattle lost 33 cents. Nearby feeders gained 60 cents. And the October lean hog contract was up $1.60.
In other markets of interest, the Euro gained 120 basis points against the dollar. Crude oil gained nearly $2.00 per barrel. As fear of a weakening dollar rises, Comex Gold stayed well above the $1000-mark with a weekly gain of $44.30. And the Goldman Sachs Commodity Index gained more than 30 points to close at 470-even.
Kohake: I think it could be a bubble the same as the gold market could be right now. It is getting to be a very crowded trade, a lot of extremists talking 72, 71 point dollar and $1100 gold so I'd be very careful in here right now of adding new shorts on in the U.S. dollar. But really the start of this new low this week was some rumors, no truth to it at all yet right now was OPEC meeting in secret saying that they were not going to take the U.S. dollar for shipments of crude any more so it's all a big fall out of bed with that.
Pearson: We've had that before and I've heard from many people, as a former Navy officer it always seems like whoever has the biggest guns is who becomes the nominated currency and that would still seem to be the dollar. But this conversation did happen so people are looking at the dollar and wondering. And you mentioned gold, maybe a bubble there? $1000. I'm hearing some of these mining companies are getting ready to start turning the wheels again.
Kohake: There is a lot of talk of that. The gold reality is completely based off the dollar, inflationary hedge, a flight to safety is pretty much what we have seen and I think gold will continue to trend higher for the short-term but I'd be very cautious about getting long in here right now. I'd look for a setback and then try to buy into it.
Pearson: Jamey, if we go to gold as the flight to safety and I'm going to go up and fill up my big Ford Excursion with a gold piece I better be packing too. So, you do kind of wonder about the world economy. Globally the world economy everything seems to be perking up, India looks like pretty decent gross domestic product growth this year, China still pretty decent growth overseas.
Kohake: That's right, we've seen the Dow hang in as well. We're still very, very supportive there and we're just seeing more good news come along very, very slowly. But I'd still be very cautious up in here. I do agree with you about getting one extreme too hard, too fast like the gold market could be and the dollar could be right now as well.
Pearson: Let's talk about some explicit cases. Let's talk first about the wheat market, some rallies there this week but the wheat supplies appear to be plentiful. What do you see ahead for wheat?
Kohake: I do agree with you on the supplies are plentiful, we saw that on today's report, we saw the carryouts increased but we did see the market get oversold, we saw a relief of that this week, saw some short covering, lower dollar spilled over from corn and beans supporting the market. I think we're in about a $4.45, $4.90 range right now for December wheat. I would sell December Chicago at $4.83 and look for a re-test of these lows. We have to keep the exports very, very supportive in here and if you have the correction to the U.S. dollar higher it's going to bring the wheat back down to around the $4.40 mark.
Pearson: So, make sales up in the top end of that range. Let's talk about the USDA's crop report as it relates to wheat. What is your take on that?
Kohake: I don't think it was a big surprise for wheat. It did show an increase in the carryout which was expected. I think we will come back down and re-test these lows. I would sell into it next week if we do get a rally in corn and beans, sell December at $4.83.
Pearson: Let's go to the corn market. Again, you can look at this crop report from the USDA and you can see some bullish stuff in there, you see some bearish stuff in there, a lot is going to come down to what the reality is that we're dealing with after the first year and once we get the crop harvested finally which is not moving along too smoothly for corn or soybeans at this point and we get this crop put away and then we'll see where the world is. But give us your take now, more confirmation of a big yield for 2009.
Kohake: That is right. We saw very, very big numbers, second biggest crop ever if everything comes to fruition like was forecasted today. I would be selling rallies in here right now. We saw nice, sharp, higher opening today and I would look on Monday or Tuesday's trade off of weather scares to sell against those highs. I would be looking at selling new crop December '10 as well up around $4.19, $4.20, the December '09 I would sell a rally too against today's highs like I was saying. But the key is not really the freeze that is forecasted for this weekend coming down close to I-80, south of I-80, the key in here with corn is harvest, getting the wetness out of the forecast, drying out and getting the combines to roll. Once that happens I think we could break this thing 30 cents pretty quick, the pipelines get full again, basis levels calm back down, we saw firmness of that this week and I think if that happens we will see a correction. I would sell into these rallies right now.
Pearson: So, take advantage of this while we've got a little bit of a harvest weather delay, take advantage of it. You mentioned basis values, it's been a roller coaster for basis values so far this year.
Kohake: Yes, it has. We've seen here just recently a pick up, again, in the basis just because there are no combines to go anywhere, harvest is delayed all over the country and ethanol plants especially are short bought. But still if you've got the storage I would store the corn to next July, the market is telling you that there's full carry, the excess grain is coming with the combine here. I would go and sell in the cash market, look for a pullback and buy calls.
Pearson: Buy some calls, you're also talking about selling some of that December 2010 corn as well at almost $4.20?
Kohake: That is right. I think that is a great sell for the short-term right now. The carryout is very, very comfortable, 16 carryout reported on today's numbers and you look at the break evens, the cheaper input costs, a guy can make money at $4.20 corn.
Pearson: Let's talk about soybeans. Similar story, a slow harvest so far, some of the stories anecdotal, exceedingly good yields from many parts of the soybean belt. USDA's number pretty much lined up with what people were expecting and we keep hearing the demand for soy protein worldwide is unquenchable. So, do you want to sell beans in here?
Kohake: I don't want to yet. I'd wait and see the weather forecasts Sunday night and Monday. I think we will continue the volatility to very, very extreme measures right now. The key here is the same as the corn, going to be how fast we can get these beans harvested, get the pipelines back full again. We saw a nice firmer trade today, the opening calls are lower off the report, the report was pretty much neutral, same as last month's but we're seeing a tremendous amount of fund money come into the beans. Funds are back up along roughly 20,000 contracts again, getting a spillover from the higher crude trade, the lower dollar and I think that will continue at least on Monday. But to hear the same as the corn I would come in and sell short-term November '09 and longer term November '10. I like selling these November '10 beans up around $9.49 and I like selling the November '09 up around $9.80, $9.85.
Pearson: Those aren't permanent, you're going to take advantage of those and move them off the table at some point?
Kohake: I will take the short-term November '09 off relatively quick, get a 40 cent pullback and take those off. But I think November '10 up around $9.50 that's a longer term hedge that I want to stick with.
Pearson: You're not real bullish about 2010 for corn or beans.
Kohake: November '10 beans completely depends upon South America. If they come in forecasted like they are with the acres and we have no delays planting wise down there I think you could see a sharper setback here in with the beans. But right now it's a money flow game. The outside markets are very, very supportive, they're spilling over in corn and beans, we've seen the funds use the grain market as a hedge again for inflation and that's what has been happening.
Kohake: November '10 beans completely depends upon South America. If they come in forecasted like they are with the acres and we have no delays planting wise down there I think you could see a sharper setback here in with the beans. But right now it's a money flow game. The outside markets are very, very supportive, they're spilling over in corn and beans, we've seen the funds use the grain market as a hedge again for inflation and that's what has been happening.
Pearson: How much of an inflation monger are you? Are you all concerned about inflation going off the charts again?
Kohake: Not for the short-term right now. Like I said the U.S. dollar I think the market is becoming very, very crowded right now and we're getting extremely bullish or bearish, one way or the other looking for a setback.
Pearson: Let's talk about livestock while I've got you here. Cattle and hog business, dairy business, the poultry business, it's been under huge stress. We keep waiting for a turn to come. We hit the turn in fed cattle.
Kohake: I think we were very, very close in there. We did see a lower cash trade again this week but we did see a lot of short covering Thursday and Friday which was nice to see. If I was looking to trade cattle I would buy them around $83.30 December live, sell them up around $86 and I would hedge them again at $86 as well so the two sides are a spec and hedge play. The key right now for cattle to me is the cutouts. We've got a combined cutout number of 131.5, that's about a four year low that we're at right now. There is no support below 131 so if you close below 131 two or three days in a row then you've got to get short on the hedger back again but I think we will see a correction up in here to be able to sell into. I'm not doing any hedging right now. I'm looking at $86 December live to sell into.
Pearson: What about the calf market? What is your take there?
Kohake: I think a lot there depends on the corn market right now. We had a reversal on the charts this week that I do like and not getting short in here right now looking for a little bit of a setback, selling November feeders around $95.60 right now.
Pearson: Let's talk about the hog market. It seems like there's been so much frustration on that one. When will we see some liquidation start to occur? When will we start to see prices start to turn? Obviously the cheap dollar helps us overseas moving some pork. Is that what is going to be the catalyst to some stronger prices unless this liquidation occurs in earnest soon?
Kohake: That's what happened this week, Mark. We saw roughly a $5 rally in the hogs mostly off short covering via the U.S. dollar falling out of bed again. But I think right now we're not going to see the bullish numbers creep in until sometime first quarter, second quarter of next year. Seasonally between right now, 1st of October to roughly Thanksgiving every year for the last ten years we have lost between $6 and $18 so I'm looking to sell into this rally, $60, $70 in February, about $54.20 in December, get a higher opening Monday or Tuesday and turn around and get shorter we can look for that seasonal to kick in.
Pearson: Let's talk about covering some of that feed need. You're not really concerned about big prices for 2010 for corn and beans depending on what happens in South America, obviously depends on the weather which is always the caveat to all these discussions. But based on that near-term if you're in the cattle business, the hog business are you buying any corn in here as this basis started to hopefully break again?
Kohake: Right, I'm long quite a bit right now covered call strategies for cattle guys, hog guys right now. Where we're sitting at right now I would be very cautious of adding longs on. I think we could see 20 more cents of upside in corn, maybe 30 or 40 in beans and beans just because they have more delays. But other than that I think if you're not covered I would wait and sit back and wait for a technical correction to occur.
Pearson: Real quick, class 3 dairy prices continuing this up trend?
Kohake: First part of next week but I'd sell into it as a hedge.
Pearson: Jamey Kohake, we appreciate it, thank you so much. That will wrap up this week's show. But before we go we want to remind you about a special Rural Economic Summit we'll be taping in Shenandoah, Iowa on October 22nd. It's the first of four special road editions examining the rural economy. We'll assemble a panel of experts and you are invited to join the discussion by submitting your questions at the Market to Market Web site. But we want to get the conversation going by asking you the following: How has the economic downturn affected you and your community. This is your opportunity to have your voice heard and share your comments and concerns about the future of rural America. Visit the Market to Market Web site to submit questions for the Rural Economic Summit. Of course, be sure to join us again next week when we'll examine the latest global hunger efforts at this year's World Food Prize. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
Market to Market is a production of Iowa Public Television which is solely responsible for its content. Funding for Market to Market is provided by Pioneer Hi-Bred ... working with growers to help put the right product in each field. Pioneer ... science with service delivering success.
