The Baltic Dry Index has been signaled as relevant indicator of an eventual recovery of global commodity trade. Trade has recovered, and 2010 promises to be another year of malthusian inflation.
By Alaric Nightingale
Dec. 24 (Bloomberg) -- The Baltic Dry Index, a measure of shipping costs for commodities, posted its best-ever annual advance in London after record iron-ore demand from China.
The index tracking transport costs on international trade routes advanced 288 percent this year, exceeding the record 174 percent set in 2003, data from the Baltic Exchange show. The gauge was first published in 1985.
Shipping costs rebounded this year, after plunging a record 92 percent last year, as the global economy recovered from its deepest recession since World War II. China, the world’s biggest consumer of iron ore and coal, spent $586 billion to stimulate its economy. The two commodities are the biggest cargoes carried by ships included in the Baltic Dry Index.
“Next year is going to be a better year than a lot of people expect, but a lot depends on Chinese demand continuing,” said Michael Gaylard, strategic director at Freight Investor Services Ltd., a London-based derivatives broker.
Seaborne trade in coal, ore, grains and other dry bulk commodities will drop 1.2 percent to 2.997 billion metric tons this year, according to London-based Drewry Shipping Consultants Ltd. Ships carry about 90 percent of world trade, The Round Table of International Shipping Associations estimates.
The index swung between 772 points and 4,661 points this year, dropping as much as 29 percent in September and gaining as much as 96 percent in February and May.
“We’re going to see increased volatility which is going to exacerbate tightness and slackness,” Gaylard said.
The index fell 0.6 percent to 3,005 points today, the last day it will price this year. Capesizes, most commonly used to haul iron ore cargoes to China from Brazil and Australia, lost 1 percent $37,191 a day. Smaller panamaxes added 0.7 percent to $28,620 a day. Supramaxes declined lost 1 percent to $23,253 a day and handysizes lost 1.2 percent to $16,862 a day.
To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net Last Updated: December 24, 2009 08:48 EST
martes, 29 de diciembre de 2009
martes, 15 de diciembre de 2009
Food inflation returns
Traditional economists may say that it is because of a low dollar. But high food prices -for rice, soybeans, corn- are here to stay.
Fastest Food Inflation Since Riots Means Milk Up 39%
By Alan Bjerga, Madelene Pearson and Yi Tian
Dec. 14 (Bloomberg) -- Falling production in commodities from rice to milk is bad news for just about everyone except investors.
Rice may surge 63 percent to $1,038 a metric ton from $638 on Philippine imports and a shortage in India, a Bloomberg survey of importers, exporters and analysts showed. The U.S. government says nonfat dry milk may jump 39 percent next year, and JPMorgan Chase & Co. forecasts a 25 percent gain for sugar. Global food costs jumped 7 percent in November, the most since February 2008, four months before reaching a record, according to the United Nations Food and Agriculture Organization.
Farm prices this year lagged behind copper futures that doubled and oil’s 57 percent increase. A recovery from the worst recession since World War II would spur food demand and boost costs for buyers of commodities including milk processor Dean Foods Co. while increasing the number of hungry people that the UN says now exceeds 1 billion.
“Agricultural commodities will be a great investment in the next three to five years,” said Oliver Kratz, who manages $10 billion as head of Global Thematic Strategy investments at Deutsche Bank AG’s DB Advisors in New York, including $3 billion in agriculture. For those who can’t afford to pay more for food, there’s the “painful” risk of hunger, he said.
Expanding populations and higher incomes are boosting consumption in China and India. China’s milk demand is recovering after domestic supplies were tainted with melamine, a chemical used in making plastics that killed at least six babies and sickened almost 300,000 children. Droughts in India and Argentina and typhoons in the Philippines have reduced output.
Food-Price Risk
“Inventories are extremely low in a number of grains markets,” Barclays Capital said Dec. 10. “The prospect of a further bout of food-price inflation in 2010 cannot be ruled out since many of the factors that contributed to higher prices in 2007 and 2008 are still a feature.”
Stockpiles of corn and rice will drop before the 2010 harvest for the first time in three years, U.S. Department of Agriculture data show. The International Sugar Organization forecasts a second straight global supply deficit in the year through September 2010, and the USDA predicts stores of the sweetener will drop to the lowest level since 1995.
Pork, Poultry
Wholesale-pork prices in the U.S. are up 27 percent this year, heading for the first annual gain since 2004, as farmers hurt by two years of losses cut the domestic breeding herd to the smallest level since the USDA started collecting the data in 1964. Chicken output is sliding in the U.S., where the number of eggs placed into incubators each week is headed to the lowest quarterly average since 2002.
“The tendency for food prices is up, it’s not down,” Unilever Chief Executive Officer Paul Polman said Dec. 11 in a Bloomberg Television interview in Copenhagen. Rotterdam- and London-based Unilever, the largest consumer-product company after Procter & Gamble Co. in Cincinnati, makes Lipton tea, Hellmann’s mayonnaise and Bertolli sauces. “We need to be sure that we have the food supply, that we don’t waste, and that we continue to get increasingly efficient means to get that food to the consumers,” Polman said.
The risk of accelerating prices may be muted by “healthy” gains in inventories, including wheat, according to the FAO. Supplies in warehouses are enough to meet about 23 percent of global demand, compared with 19 percent two years ago, the FAO said last week. Inventories are “far more comfortable” than during last year’s crisis, the UN agency said.
More Wheat Supply
Global wheat stockpiles on May 31 are expected to jump 17 percent to an eight-year high of 190.9 million metric tons, after production last year reached a record 682 million tons, the USDA said Dec. 10.
Food costs jumped to a record in June 2008 as wheat, corn, rice, oats, soybeans, animal feed and cooking oil reached the highest prices ever. Indonesia, Argentina and India restricted trade to protect supplies, according to the UN. Shortages sparked about 60 riots from Haiti to the Philippines before the global credit crisis and recession sent prices plunging.
Global economic recovery means there is “increasing pressure on food prices to rise,” Nomura International Plc said in a report. “Volatility in price and supply are with us for the predictable future,” according to Josette Sheeran, the executive director of the UN’s World Food Program. “Risk is the new normal when it comes to food.”
Economic Growth Seen
The global economy will expand 3.1 percent in 2010 as more than $2 trillion in stimulus combined with demand in Asia pulls the world out the recession, the Washington-based International Monetary Fund said on Oct. 1.
The U.S. will expand 2.6 percent next year, compared with a contraction of 2.5 percent in 2009, according to the median of estimates from 83 economists in a Bloomberg survey. China’s growth will accelerate to 9.4 percent next year from 8.5 percent in 2009, a Bloomberg survey of 31 economists showed.
Some food supplies already are falling. Global production of rice, the staple for more than half the world, has lagged behind demand in four of the past eight years, USDA data show. Rising consumption is expected to erode stockpiles by 41 percent to 85.9 million tons in the 2009-2010 marketing year, down from a record 146.7 million in 2001-2002, the USDA forecasts.
Rice may exceed $1,000 a ton as dry El Nino weather, caused by a warming of sea waters in the equatorial Pacific Ocean, shrinks output and the Philippines and India boost imports, according to Sarunyu Jeamsinkul, the deputy managing director at Asia Golden Rice Ltd. in Thailand, the largest exporting nation.
Rice, Corn, Soybeans
The Thai rice price may soar to last year’s record of $1,038 a ton, according to the highest estimate in a Bloomberg survey last month of 10 importers, exporters and analysts in Vietnam, Thailand, India, Singapore and Pakistan.
Goldman Sachs Group Inc. said Dec. 3 that corn and soybeans will rally through 2011. Corn will reach $4.75 a bushel next year and $5 in 2011 on higher demand for fuels made from the grain, the bank said. Soybeans may reach $11 a bushel in the next 12 months and average $12 a bushel in 2011, Goldman said.
Decatur, Illinois-based Archer Daniels Midland Co., the second-largest U.S. producer of corn-based ethanol behind Poet LLC, reported a 53 percent drop in quarterly profit last month on tighter supplies of soybeans it processes into animal feed and cooking oil.
In the sweeteners and starches business, Archer Daniels Midland’s profit more than tripled to $194 million, partly because of higher selling prices and reduced costs for corn, which fell from last year’s record. Archer Daniels gained 14 percent since the end of June to $30.49 in New York trading.
Milk Supplies
U.S. manufacturers’ stockpiles of nonfat dry milk fell to 90.1 million pounds on Oct. 31, 47 percent lower than a year earlier and less than half of what they were in June, the USDA said Dec. 4. Domestic production this year is down 8.2 percent, including a 27 percent drop in October, as farmers culled dairy herds to end a surplus, government data show.
The price of nonfat dry milk, used in baking products and baby formula, will rise to an average of $1.275 a pound next year from 92 cents, and cheese will increase 28 percent, the USDA said on Dec. 10. Processed and fluid milk will jump 31 percent to $16.75 per 100 pounds, the USDA said.
“We’ve been through the boom and then the bust, and it looks like we’re going to have another boom,” said Michael Harvey, an international analyst at Melbourne-based Dairy Australia, a trade group.
Milk output will fall 4 percent in Australia in 2009-2010. New Zealand’s production slipped 2 percent in the first three months of its season, and Brazil’s supply dropped 4 percent to 5 percent through July, Dairy Australia said in a report.
Westpac Forecast
Milk-powder prices may gain more than 20 percent to exceed $4,000 a ton early next year, said Westpac Banking Corp., Australia’s second-largest bank. Whole milk powder for February delivery rose to a 16-month high of $3,523 a ton at auction, Fonterra, the world’s largest dairy exporter, said on Dec. 2.
Dean Foods, the largest U.S. milk processor, said Nov. 2 that fourth-quarter profit may fall more than analysts expected, to at least 36 cents a share, because of rising raw-milk costs. Chief Executive Officer Gregg Engles told investors that prices, which will climb through next year, probably won’t surpass the records set in 2007 and 2008. Since Oct. 30, shares of Dallas- based Dean are down 5.4 percent at $17.25 in New York.
Global sugar supplies will remain “tight” for the first half of 2010, JPMorgan Chase said. There’s a “material risk” that prices for March and May will jump 28 percent to 30 cents a pound, Tobin Gorey, the bank’s global commodity strategist, wrote in a report dated Dec. 10. Sugar for March delivery in New York increased 6.6 percent last week to close at 24 cents a pound on Dec. 11.
Palm Oil, Food Output
Palm oil, the world’s most-used cooking oil, may soar to 3,000 ringgit ($882) a ton by March as El Nino parches crops in Asia, said Dorab Mistry, director of Godrej International Ltd., one of India’s biggest edible-oil buyers, on Dec. 4. Palm-oil futures for February delivery closed at 2,530 ringgit on Dec. 11 in Kuala Lumpur. Production may drop next year, he said.
Food output will need to rise 70 percent in the next four decades as the global population expands to 9.1 billion in 2050 from 6.8 billion, the FAO estimates. Seven nations in sub- Saharan Africa, the world’s most famine-prone region, will see per-capita income fall next year, according to the UN, fueling an increase in hunger, which the organization now estimates affects 1.02 billion people.
“The politicians had best be able to at least feed their populations or they’re going to have uprisings,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $220 billion. “One of the first things, other than clean water and a toilet, that people want when their per capita income rises is food.”
Fastest Food Inflation Since Riots Means Milk Up 39%
By Alan Bjerga, Madelene Pearson and Yi Tian
Dec. 14 (Bloomberg) -- Falling production in commodities from rice to milk is bad news for just about everyone except investors.
Rice may surge 63 percent to $1,038 a metric ton from $638 on Philippine imports and a shortage in India, a Bloomberg survey of importers, exporters and analysts showed. The U.S. government says nonfat dry milk may jump 39 percent next year, and JPMorgan Chase & Co. forecasts a 25 percent gain for sugar. Global food costs jumped 7 percent in November, the most since February 2008, four months before reaching a record, according to the United Nations Food and Agriculture Organization.
Farm prices this year lagged behind copper futures that doubled and oil’s 57 percent increase. A recovery from the worst recession since World War II would spur food demand and boost costs for buyers of commodities including milk processor Dean Foods Co. while increasing the number of hungry people that the UN says now exceeds 1 billion.
“Agricultural commodities will be a great investment in the next three to five years,” said Oliver Kratz, who manages $10 billion as head of Global Thematic Strategy investments at Deutsche Bank AG’s DB Advisors in New York, including $3 billion in agriculture. For those who can’t afford to pay more for food, there’s the “painful” risk of hunger, he said.
Expanding populations and higher incomes are boosting consumption in China and India. China’s milk demand is recovering after domestic supplies were tainted with melamine, a chemical used in making plastics that killed at least six babies and sickened almost 300,000 children. Droughts in India and Argentina and typhoons in the Philippines have reduced output.
Food-Price Risk
“Inventories are extremely low in a number of grains markets,” Barclays Capital said Dec. 10. “The prospect of a further bout of food-price inflation in 2010 cannot be ruled out since many of the factors that contributed to higher prices in 2007 and 2008 are still a feature.”
Stockpiles of corn and rice will drop before the 2010 harvest for the first time in three years, U.S. Department of Agriculture data show. The International Sugar Organization forecasts a second straight global supply deficit in the year through September 2010, and the USDA predicts stores of the sweetener will drop to the lowest level since 1995.
Pork, Poultry
Wholesale-pork prices in the U.S. are up 27 percent this year, heading for the first annual gain since 2004, as farmers hurt by two years of losses cut the domestic breeding herd to the smallest level since the USDA started collecting the data in 1964. Chicken output is sliding in the U.S., where the number of eggs placed into incubators each week is headed to the lowest quarterly average since 2002.
“The tendency for food prices is up, it’s not down,” Unilever Chief Executive Officer Paul Polman said Dec. 11 in a Bloomberg Television interview in Copenhagen. Rotterdam- and London-based Unilever, the largest consumer-product company after Procter & Gamble Co. in Cincinnati, makes Lipton tea, Hellmann’s mayonnaise and Bertolli sauces. “We need to be sure that we have the food supply, that we don’t waste, and that we continue to get increasingly efficient means to get that food to the consumers,” Polman said.
The risk of accelerating prices may be muted by “healthy” gains in inventories, including wheat, according to the FAO. Supplies in warehouses are enough to meet about 23 percent of global demand, compared with 19 percent two years ago, the FAO said last week. Inventories are “far more comfortable” than during last year’s crisis, the UN agency said.
More Wheat Supply
Global wheat stockpiles on May 31 are expected to jump 17 percent to an eight-year high of 190.9 million metric tons, after production last year reached a record 682 million tons, the USDA said Dec. 10.
Food costs jumped to a record in June 2008 as wheat, corn, rice, oats, soybeans, animal feed and cooking oil reached the highest prices ever. Indonesia, Argentina and India restricted trade to protect supplies, according to the UN. Shortages sparked about 60 riots from Haiti to the Philippines before the global credit crisis and recession sent prices plunging.
Global economic recovery means there is “increasing pressure on food prices to rise,” Nomura International Plc said in a report. “Volatility in price and supply are with us for the predictable future,” according to Josette Sheeran, the executive director of the UN’s World Food Program. “Risk is the new normal when it comes to food.”
Economic Growth Seen
The global economy will expand 3.1 percent in 2010 as more than $2 trillion in stimulus combined with demand in Asia pulls the world out the recession, the Washington-based International Monetary Fund said on Oct. 1.
The U.S. will expand 2.6 percent next year, compared with a contraction of 2.5 percent in 2009, according to the median of estimates from 83 economists in a Bloomberg survey. China’s growth will accelerate to 9.4 percent next year from 8.5 percent in 2009, a Bloomberg survey of 31 economists showed.
Some food supplies already are falling. Global production of rice, the staple for more than half the world, has lagged behind demand in four of the past eight years, USDA data show. Rising consumption is expected to erode stockpiles by 41 percent to 85.9 million tons in the 2009-2010 marketing year, down from a record 146.7 million in 2001-2002, the USDA forecasts.
Rice may exceed $1,000 a ton as dry El Nino weather, caused by a warming of sea waters in the equatorial Pacific Ocean, shrinks output and the Philippines and India boost imports, according to Sarunyu Jeamsinkul, the deputy managing director at Asia Golden Rice Ltd. in Thailand, the largest exporting nation.
Rice, Corn, Soybeans
The Thai rice price may soar to last year’s record of $1,038 a ton, according to the highest estimate in a Bloomberg survey last month of 10 importers, exporters and analysts in Vietnam, Thailand, India, Singapore and Pakistan.
Goldman Sachs Group Inc. said Dec. 3 that corn and soybeans will rally through 2011. Corn will reach $4.75 a bushel next year and $5 in 2011 on higher demand for fuels made from the grain, the bank said. Soybeans may reach $11 a bushel in the next 12 months and average $12 a bushel in 2011, Goldman said.
Decatur, Illinois-based Archer Daniels Midland Co., the second-largest U.S. producer of corn-based ethanol behind Poet LLC, reported a 53 percent drop in quarterly profit last month on tighter supplies of soybeans it processes into animal feed and cooking oil.
In the sweeteners and starches business, Archer Daniels Midland’s profit more than tripled to $194 million, partly because of higher selling prices and reduced costs for corn, which fell from last year’s record. Archer Daniels gained 14 percent since the end of June to $30.49 in New York trading.
Milk Supplies
U.S. manufacturers’ stockpiles of nonfat dry milk fell to 90.1 million pounds on Oct. 31, 47 percent lower than a year earlier and less than half of what they were in June, the USDA said Dec. 4. Domestic production this year is down 8.2 percent, including a 27 percent drop in October, as farmers culled dairy herds to end a surplus, government data show.
The price of nonfat dry milk, used in baking products and baby formula, will rise to an average of $1.275 a pound next year from 92 cents, and cheese will increase 28 percent, the USDA said on Dec. 10. Processed and fluid milk will jump 31 percent to $16.75 per 100 pounds, the USDA said.
“We’ve been through the boom and then the bust, and it looks like we’re going to have another boom,” said Michael Harvey, an international analyst at Melbourne-based Dairy Australia, a trade group.
Milk output will fall 4 percent in Australia in 2009-2010. New Zealand’s production slipped 2 percent in the first three months of its season, and Brazil’s supply dropped 4 percent to 5 percent through July, Dairy Australia said in a report.
Westpac Forecast
Milk-powder prices may gain more than 20 percent to exceed $4,000 a ton early next year, said Westpac Banking Corp., Australia’s second-largest bank. Whole milk powder for February delivery rose to a 16-month high of $3,523 a ton at auction, Fonterra, the world’s largest dairy exporter, said on Dec. 2.
Dean Foods, the largest U.S. milk processor, said Nov. 2 that fourth-quarter profit may fall more than analysts expected, to at least 36 cents a share, because of rising raw-milk costs. Chief Executive Officer Gregg Engles told investors that prices, which will climb through next year, probably won’t surpass the records set in 2007 and 2008. Since Oct. 30, shares of Dallas- based Dean are down 5.4 percent at $17.25 in New York.
Global sugar supplies will remain “tight” for the first half of 2010, JPMorgan Chase said. There’s a “material risk” that prices for March and May will jump 28 percent to 30 cents a pound, Tobin Gorey, the bank’s global commodity strategist, wrote in a report dated Dec. 10. Sugar for March delivery in New York increased 6.6 percent last week to close at 24 cents a pound on Dec. 11.
Palm Oil, Food Output
Palm oil, the world’s most-used cooking oil, may soar to 3,000 ringgit ($882) a ton by March as El Nino parches crops in Asia, said Dorab Mistry, director of Godrej International Ltd., one of India’s biggest edible-oil buyers, on Dec. 4. Palm-oil futures for February delivery closed at 2,530 ringgit on Dec. 11 in Kuala Lumpur. Production may drop next year, he said.
Food output will need to rise 70 percent in the next four decades as the global population expands to 9.1 billion in 2050 from 6.8 billion, the FAO estimates. Seven nations in sub- Saharan Africa, the world’s most famine-prone region, will see per-capita income fall next year, according to the UN, fueling an increase in hunger, which the organization now estimates affects 1.02 billion people.
“The politicians had best be able to at least feed their populations or they’re going to have uprisings,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $220 billion. “One of the first things, other than clean water and a toilet, that people want when their per capita income rises is food.”
martes, 1 de diciembre de 2009
U.S. Postpones Decision on Ethanol Blend in Gasoline (Update1)
By Daniel Whitten and Mario Parker
Dec. 1 (Bloomberg) -- U.S. regulators postponed a decision on raising the percentage of ethanol allowed in gasoline until mid-2010 to allow more time to assess effects on engines.
The Environmental Protection Agency said it would keep the blend at 10 percent and could expand it based on a study on higher ethanol mixes in engines for cars and equipment such as lawn mowers. GrowthEnergy, an ethanol industry trade group, had asked that the agency permit 15 percent, also known as E15.
“While not all tests have been completed, the results of two tests indicate that engines in newer cars likely can handle an ethanol blend higher than the current 10 percent limit,” the EPA said today in a statement. The agency “expects to make a final determination in mid-2010 regarding whether to increase the allowable ethanol content in fuel.”
Raising the so-called blend ratio would increase demand for the fuel, benefiting producers battered by volatile corn and fuel prices. At least 10 ethanol companies have sought bankruptcy protection since last year, including VeraSun Energy Corp. and Aventine Renewable Holdings Inc. Automakers and refiners have opposed a change, saying added ethanol would damage engines.
Growth Energy said in a statement today that increasing the allowable ethanol blend would create U.S. jobs, a contention the Washington-based Environmental Working Group disputed in a study posted on its Web site yesterday.
‘Strong Signal’
“This announcement is a strong signal that we are preparing to move to E15, a measure that will create 136,000 new U.S. jobs, cut greenhouse gas emissions and lessen America’s dependence on imported oil,” retired Army General Wesley Clark, Growth Energy’s co-chairman, said in a statement today.
The U.S. Energy Independence and Security Act of 2007 calls for the nation to use 12 billion gallons of renewable fuels such as ethanol next year, up from 10.5 billion in 2009. The law requires the U.S. to use 15 billion gallons of the biofuel by 2015.
EPA said in a letter to Growth Energy dated Nov. 30 that in order to meet that standard “it is clear that ethanol will need to be blended into gasoline at levels greater than the current 10 percent.”
The letter said that the Energy Department is testing 19 vehicles and expects to have complete data on 12 vehicles by the end of May, which will provide “a significant amount” of data.
Poet LLC, Archer Daniels Midland Co., Valero Energy Corp. and Green Plains Renewable Energy Inc. are the largest ethanol producers.
ADM, Monsanto, Deere
ADM, the second-biggest U.S. ethanol producer, and agricultural companies such as Monsanto Co. and Deere & Co. stand to gain if the EPA eventually allows a 15 percent formula, Morgan Stanley analysts led by Vincent Andrews in New York said in a report yesterday.
“If we are going to show investors and the international community that we are serious about developing alternatives to petroleum, this is a good way to do it,” Matt Hartwig, a spokesman for the Renewable Fuels Association in Washington, said of raising the standard. “You have to change what people put in their gas tanks.”
To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net; Mario Parker in Chicago at 5927 or mparker22@bloomberg.net. Last Updated: December 1, 2009 10:50 EST
Dec. 1 (Bloomberg) -- U.S. regulators postponed a decision on raising the percentage of ethanol allowed in gasoline until mid-2010 to allow more time to assess effects on engines.
The Environmental Protection Agency said it would keep the blend at 10 percent and could expand it based on a study on higher ethanol mixes in engines for cars and equipment such as lawn mowers. GrowthEnergy, an ethanol industry trade group, had asked that the agency permit 15 percent, also known as E15.
“While not all tests have been completed, the results of two tests indicate that engines in newer cars likely can handle an ethanol blend higher than the current 10 percent limit,” the EPA said today in a statement. The agency “expects to make a final determination in mid-2010 regarding whether to increase the allowable ethanol content in fuel.”
Raising the so-called blend ratio would increase demand for the fuel, benefiting producers battered by volatile corn and fuel prices. At least 10 ethanol companies have sought bankruptcy protection since last year, including VeraSun Energy Corp. and Aventine Renewable Holdings Inc. Automakers and refiners have opposed a change, saying added ethanol would damage engines.
Growth Energy said in a statement today that increasing the allowable ethanol blend would create U.S. jobs, a contention the Washington-based Environmental Working Group disputed in a study posted on its Web site yesterday.
‘Strong Signal’
“This announcement is a strong signal that we are preparing to move to E15, a measure that will create 136,000 new U.S. jobs, cut greenhouse gas emissions and lessen America’s dependence on imported oil,” retired Army General Wesley Clark, Growth Energy’s co-chairman, said in a statement today.
The U.S. Energy Independence and Security Act of 2007 calls for the nation to use 12 billion gallons of renewable fuels such as ethanol next year, up from 10.5 billion in 2009. The law requires the U.S. to use 15 billion gallons of the biofuel by 2015.
EPA said in a letter to Growth Energy dated Nov. 30 that in order to meet that standard “it is clear that ethanol will need to be blended into gasoline at levels greater than the current 10 percent.”
The letter said that the Energy Department is testing 19 vehicles and expects to have complete data on 12 vehicles by the end of May, which will provide “a significant amount” of data.
Poet LLC, Archer Daniels Midland Co., Valero Energy Corp. and Green Plains Renewable Energy Inc. are the largest ethanol producers.
ADM, Monsanto, Deere
ADM, the second-biggest U.S. ethanol producer, and agricultural companies such as Monsanto Co. and Deere & Co. stand to gain if the EPA eventually allows a 15 percent formula, Morgan Stanley analysts led by Vincent Andrews in New York said in a report yesterday.
“If we are going to show investors and the international community that we are serious about developing alternatives to petroleum, this is a good way to do it,” Matt Hartwig, a spokesman for the Renewable Fuels Association in Washington, said of raising the standard. “You have to change what people put in their gas tanks.”
To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net; Mario Parker in Chicago at 5927 or mparker22@bloomberg.net. Last Updated: December 1, 2009 10:50 EST
lunes, 30 de noviembre de 2009
EPA May Increase Ethanol Blend to 11%, Morgan Stanley Says
If the US economy becomes more alcoholic, corn demanda will continue to expand to levels more and more difficult to reach without leaving less land for other crops.... Another side of the Malthusian situation.
Nov. 30 (Bloomberg) -- The U.S. Environmental Protection Agency may allow the percentage of ethanol in gasoline to increase to 11 percent, analysts at Morgan Stanley & Co. said in a report today.
The EPA is expected to decide by tomorrow on an ethanol industry request to allow the ratio of ethanol in gasoline to rise to 15 percent from 10 percent. Growth Energy, an ethanol industry trade group, filed the request in March.
“While we are maintaining our long-held view that U.S. ethanol blend levels will ultimately migrate well north of the current 10 percent, we do not expect a material increase in the blend rate as a result of tomorrow’s EPA decision,” Morgan Stanley analysts Vincent Andrews, Robert Wertheimer and Megan Davis wrote.
Raising the blend ratio is a source of contention between the industry, oil refiners and automakers. Growth Energy filed the waiver request to lift demand for an industry that’s been battered by volatile corn and fuel prices. At least 10 companies have sought bankruptcy protection since last year, including VeraSun Energy Corp. and Aventine Renewable Holdings Inc.
The analysts said the EPA could allow refiners to sell gasoline that contains 11 percent ethanol until it determines the impact E-15 would have on engines.
“We would see this as a signal that the EPA is willing to let ethanol blend levels go higher over time assuming that a thorough data analysis concluded that there was no meaningful risks to such action,” Morgan Stanley said.
Court Resolution
The agency could also leave the current blend level unchanged, signaling that it won’t allow the ratio of ethanol in gasoline to surpass 10 percent, the analysts said. The decision is likely to be contested in court, according to the report.
Archer Daniels Midland Co., the second-biggest U.S. ethanol producer, and agricultural companies such as Monsanto Co. and Deere & Co. could surge if the EPA allows the higher formula, the analysts wrote.
Poet LLC, ADM, Valero Energy Corp. and Green Plains Renewable Energy Inc. are the largest ethanol producers.
To contact the reporter on this story: Mario Parker in Chicago at 5927 or mparker22@bloomberg.net.
Nov. 30 (Bloomberg) -- The U.S. Environmental Protection Agency may allow the percentage of ethanol in gasoline to increase to 11 percent, analysts at Morgan Stanley & Co. said in a report today.
The EPA is expected to decide by tomorrow on an ethanol industry request to allow the ratio of ethanol in gasoline to rise to 15 percent from 10 percent. Growth Energy, an ethanol industry trade group, filed the request in March.
“While we are maintaining our long-held view that U.S. ethanol blend levels will ultimately migrate well north of the current 10 percent, we do not expect a material increase in the blend rate as a result of tomorrow’s EPA decision,” Morgan Stanley analysts Vincent Andrews, Robert Wertheimer and Megan Davis wrote.
Raising the blend ratio is a source of contention between the industry, oil refiners and automakers. Growth Energy filed the waiver request to lift demand for an industry that’s been battered by volatile corn and fuel prices. At least 10 companies have sought bankruptcy protection since last year, including VeraSun Energy Corp. and Aventine Renewable Holdings Inc.
The analysts said the EPA could allow refiners to sell gasoline that contains 11 percent ethanol until it determines the impact E-15 would have on engines.
“We would see this as a signal that the EPA is willing to let ethanol blend levels go higher over time assuming that a thorough data analysis concluded that there was no meaningful risks to such action,” Morgan Stanley said.
Court Resolution
The agency could also leave the current blend level unchanged, signaling that it won’t allow the ratio of ethanol in gasoline to surpass 10 percent, the analysts said. The decision is likely to be contested in court, according to the report.
Archer Daniels Midland Co., the second-biggest U.S. ethanol producer, and agricultural companies such as Monsanto Co. and Deere & Co. could surge if the EPA allows the higher formula, the analysts wrote.
Poet LLC, ADM, Valero Energy Corp. and Green Plains Renewable Energy Inc. are the largest ethanol producers.
To contact the reporter on this story: Mario Parker in Chicago at 5927 or mparker22@bloomberg.net.
martes, 24 de noviembre de 2009
Oil will not be enough in 2010
Prepare for a barel above US$ 100 by late 2010
World oil demand growth to outpace supply in 2010: poll
On 7:34 am EST, Tuesday November 24, 2009
By David Sheppard and Joshua Schneyer
Reuters -
LONDON/NEW YORK (Reuters) - Growing world oil use will likely outpace the rate of new supplies in 2010, eroding the huge stockpiles of crude which have mounted around the world since the start of the global economic crisis.
According to a Reuters poll of ten top oil-tracking analysts and organizations, oil demand is predicted to rise by 1.3 million barrels per day (bpd) next year to 85.9 million bpd.
At the same time, the rise in production from outside the Organization of the Petroleum Exporting Countries and output of natural gas liquids (NGLs) from OPEC members is seen growing by just 800,000 bpd in total.
Click here for Reuters table of results (ID:GEE5AN0S3)
Click here for a graphic illustrating the changes: http://graphics.thomsonreuters.com/119/OIL_EZPOLL1109.gif
Click here for a spreadsheet on supply and demand
http://graphics.thomsonreuters.com/ce-insight/OIL-POLL-NOV09.pdf "The key question for prices is supply," Barclays C
http://graphics.thomsonreuters.com/ce-insight/OIL-POLL-NOV09.pdf "The key question for prices is supply," Barclays C apital analyst Costanzo Jacazio said.
"2010 is really a bridging year -- if the economies continue to perform as well as they have been doing during the early stages of the recovery, then I think by 2011 we'll be seeing the demand numbers at or above where they were in 2008."
Non-OPEC output is seen averaging 51 million bpd in 2010, up from 50.8 million bpd, while OPEC output of NGLs -- which are not subject to the producer group's production quotas -- are expected to rise to 5.6 million bpd, up by more than 20 percent since 2008.
If OPEC members can maintain current adherence levels to present output quotas, with group output including Iraq assessed around 28.9 million bpd, crude oil inventories could fall by almost 150 million barrels next year.
Demand for OPEC's crude is seen at 29.3 million bpd.
At the end of September, the International Energy Agency assessed oil stocks in the Organization for Economic Co-operation and Development (OECD) at 60 days of forward cover, 120 million barrels above the five-year average.
DIVERGENCE
Doubts surrounding the eventual strength of the economic recovery and how oil demand will respond following the impact of record prices, a global recession and increased environmental initiatives has seen many analysts' views diverge.
Investment banks Goldman Sachs and BofA-Merrill Lynch have the most bullish outlook for demand, projecting 86.4 million bpd and 86.7 million bpd respectively.
Barclays Capital sees demand at 1 million barrels below Goldman's estimate because of increased conservation efforts, but conversely sees non-OPEC supplies 1.1 million barrels lower than its U.S. rival due to falling investment during the crisis.
Deutsche Bank sees demand as relatively weak in 2010, at just 86 million bpd, despite forecasting the world economy will grow at 3.7 percent in 2010 - well above the International Monetary Fund's forecast of 3.1 percent global growth.
"The question is where's the demand growth? Year-on-year figures in the U.S. show demand still struggling," said Adam Sieminski, Deutsche Bank's head of energy research.
"It appears the economic recovery is not coming in energy-intensive or oil-intensive sectors. We may still be seeing people being careful about consumption -- if they have two cars they'll be driving the smaller one."
DEMAND GROWTH RETURNS
The expected demand increase in 2010 will be the first year to show average growth since 2007, before record prices and the economic crisis slashed consumption.
Global oil demand has fallen by almost 2 percent since 2007, when average annual consumption hit an all-time high around 86.2 million barrels daily.
The steep drop in demand saw oil prices crash from record highs of almost $150 a barrel in July 2008 to below $33 a barrel in December last year.
Since then prices have more than doubled to just below $80 a barrel as OPEC -- whose member countries pump more than one in every three barrels of oil -- tried to cut output quotas by 4.2 million barrels, or 5 percent of world demand.
Demand growth is expected to be strongest in countries outside the OECD, with China leading the way.
"We see a healthy demand recovery of 1.5 million barrels next year, there's only so much you can contract," said Sarah Emerson, director of Energy Security Analysis Inc. in Boston.
"(Demand) growth in China next year should be significant and the U.S. will go from two years of contraction to growth."
The Chinese economy is expected to grow by around 8 percent in 2009 and may post even stronger growth next year. Implied Chinese oil demand in October was up more than 10 percent year-on-year, customs data showed on Monday.
Inside the OECD, the United States is seen posting a small recovery in demand. But many analysts remain doubtful about the strength of growth with some arguing oil use may never revisit highs of earlier this decade in North America and Europe.
"We're not going to be in an environment when prices will shoot back to anything like $120 a barrel in 2010," Jacazio at Barclays Capital said.
"(But) we still see oil demand growth next year outpacing non-OPEC supplies and NGLs combined."
(Editing by Sue Thomas)
World oil demand growth to outpace supply in 2010: poll
On 7:34 am EST, Tuesday November 24, 2009
By David Sheppard and Joshua Schneyer
Reuters -
LONDON/NEW YORK (Reuters) - Growing world oil use will likely outpace the rate of new supplies in 2010, eroding the huge stockpiles of crude which have mounted around the world since the start of the global economic crisis.
According to a Reuters poll of ten top oil-tracking analysts and organizations, oil demand is predicted to rise by 1.3 million barrels per day (bpd) next year to 85.9 million bpd.
At the same time, the rise in production from outside the Organization of the Petroleum Exporting Countries and output of natural gas liquids (NGLs) from OPEC members is seen growing by just 800,000 bpd in total.
Click here for Reuters table of results (ID:GEE5AN0S3)
Click here for a graphic illustrating the changes: http://graphics.thomsonreuters.com/119/OIL_EZPOLL1109.gif
Click here for a spreadsheet on supply and demand
http://graphics.thomsonreuters.com/ce-insight/OIL-POLL-NOV09.pdf "The key question for prices is supply," Barclays C
http://graphics.thomsonreuters.com/ce-insight/OIL-POLL-NOV09.pdf "The key question for prices is supply," Barclays C apital analyst Costanzo Jacazio said.
"2010 is really a bridging year -- if the economies continue to perform as well as they have been doing during the early stages of the recovery, then I think by 2011 we'll be seeing the demand numbers at or above where they were in 2008."
Non-OPEC output is seen averaging 51 million bpd in 2010, up from 50.8 million bpd, while OPEC output of NGLs -- which are not subject to the producer group's production quotas -- are expected to rise to 5.6 million bpd, up by more than 20 percent since 2008.
If OPEC members can maintain current adherence levels to present output quotas, with group output including Iraq assessed around 28.9 million bpd, crude oil inventories could fall by almost 150 million barrels next year.
Demand for OPEC's crude is seen at 29.3 million bpd.
At the end of September, the International Energy Agency assessed oil stocks in the Organization for Economic Co-operation and Development (OECD) at 60 days of forward cover, 120 million barrels above the five-year average.
DIVERGENCE
Doubts surrounding the eventual strength of the economic recovery and how oil demand will respond following the impact of record prices, a global recession and increased environmental initiatives has seen many analysts' views diverge.
Investment banks Goldman Sachs and BofA-Merrill Lynch have the most bullish outlook for demand, projecting 86.4 million bpd and 86.7 million bpd respectively.
Barclays Capital sees demand at 1 million barrels below Goldman's estimate because of increased conservation efforts, but conversely sees non-OPEC supplies 1.1 million barrels lower than its U.S. rival due to falling investment during the crisis.
Deutsche Bank sees demand as relatively weak in 2010, at just 86 million bpd, despite forecasting the world economy will grow at 3.7 percent in 2010 - well above the International Monetary Fund's forecast of 3.1 percent global growth.
"The question is where's the demand growth? Year-on-year figures in the U.S. show demand still struggling," said Adam Sieminski, Deutsche Bank's head of energy research.
"It appears the economic recovery is not coming in energy-intensive or oil-intensive sectors. We may still be seeing people being careful about consumption -- if they have two cars they'll be driving the smaller one."
DEMAND GROWTH RETURNS
The expected demand increase in 2010 will be the first year to show average growth since 2007, before record prices and the economic crisis slashed consumption.
Global oil demand has fallen by almost 2 percent since 2007, when average annual consumption hit an all-time high around 86.2 million barrels daily.
The steep drop in demand saw oil prices crash from record highs of almost $150 a barrel in July 2008 to below $33 a barrel in December last year.
Since then prices have more than doubled to just below $80 a barrel as OPEC -- whose member countries pump more than one in every three barrels of oil -- tried to cut output quotas by 4.2 million barrels, or 5 percent of world demand.
Demand growth is expected to be strongest in countries outside the OECD, with China leading the way.
"We see a healthy demand recovery of 1.5 million barrels next year, there's only so much you can contract," said Sarah Emerson, director of Energy Security Analysis Inc. in Boston.
"(Demand) growth in China next year should be significant and the U.S. will go from two years of contraction to growth."
The Chinese economy is expected to grow by around 8 percent in 2009 and may post even stronger growth next year. Implied Chinese oil demand in October was up more than 10 percent year-on-year, customs data showed on Monday.
Inside the OECD, the United States is seen posting a small recovery in demand. But many analysts remain doubtful about the strength of growth with some arguing oil use may never revisit highs of earlier this decade in North America and Europe.
"We're not going to be in an environment when prices will shoot back to anything like $120 a barrel in 2010," Jacazio at Barclays Capital said.
"(But) we still see oil demand growth next year outpacing non-OPEC supplies and NGLs combined."
(Editing by Sue Thomas)
jueves, 12 de noviembre de 2009
Artificial weather
Artificial rain -or in this case snow- is usually mentioned as a way to improve agriculture production, or mitigate the randomness of weather. China as usual moves ahead, but the results are questioned.
Chinese Debate Creation Of Artificial Snow Over Beijing
Wednesday, 11 November 2009
Scientists in China refueled the debate over the practice of tinkering with Mother Nature by artificially inducing the second major snowstorm to wreak havoc in Beijing this season, AFP reported.
The National Meteorological Center said the earliest snow to hit the capital in 22 years fell on the first of November and the capital was again shrouded in white Tuesday with more snow expected in the coming three days.
The Beijing Weather Modification Office had artificially induced both storms by seeding clouds with chemicals, a practice that can increase precipitation by up to 20 percent, according to The China Daily, which cited an unnamed official.
On Tuesday, an official had said the storm was "natural."
Such methods are aimed at alleviating a drought over much of north China -- including Beijing -- that has lingered for more than a decade, city weather officials reported.
Meanwhile, many residents of Beijing have complained about the flight delays, traffic snarls, cancelled classes and other inconveniences of a surprise snowstorm.
Most agree that officials could warn them if they are planning to toy with the clouds.
The paper reported that beyond the day-to-day hassles, experts said the weather manipulation had other undesirable side effects in the longer term.
Xiao Gang, a professor in the Institute of Atmospheric Physics at the Chinese Academy of Sciences, told the paper that no one could tell how much weather manipulation will change the sky.
"We should not depend too much on artificial measures to get rain or snow, because there are too many uncertainties up in the sky," he said.
The more than 5,500 tons of erosive snow-melting chloride used on city roads Tuesday -- nearly half the annual allotment -- could erode steel structures of buildings, according to Zhao Nan, a Beijing engineer, was quoted in The China Daily.
The paper cited official statistics that showed the snow-melting agent was responsible for killing 10,000 trees in Beijing and decimating 2.15 million square feet of grassland in 2005.
State press reports said that despite a massive effort to clear the capital of snow that involved over 15,000 workers, many roads remained blocked, while highways into Beijing and in neighboring Hebei and Shanxi provinces were shut down.
Chinese Debate Creation Of Artificial Snow Over Beijing
Wednesday, 11 November 2009
Scientists in China refueled the debate over the practice of tinkering with Mother Nature by artificially inducing the second major snowstorm to wreak havoc in Beijing this season, AFP reported.
The National Meteorological Center said the earliest snow to hit the capital in 22 years fell on the first of November and the capital was again shrouded in white Tuesday with more snow expected in the coming three days.
The Beijing Weather Modification Office had artificially induced both storms by seeding clouds with chemicals, a practice that can increase precipitation by up to 20 percent, according to The China Daily, which cited an unnamed official.
On Tuesday, an official had said the storm was "natural."
Such methods are aimed at alleviating a drought over much of north China -- including Beijing -- that has lingered for more than a decade, city weather officials reported.
Meanwhile, many residents of Beijing have complained about the flight delays, traffic snarls, cancelled classes and other inconveniences of a surprise snowstorm.
Most agree that officials could warn them if they are planning to toy with the clouds.
The paper reported that beyond the day-to-day hassles, experts said the weather manipulation had other undesirable side effects in the longer term.
Xiao Gang, a professor in the Institute of Atmospheric Physics at the Chinese Academy of Sciences, told the paper that no one could tell how much weather manipulation will change the sky.
"We should not depend too much on artificial measures to get rain or snow, because there are too many uncertainties up in the sky," he said.
The more than 5,500 tons of erosive snow-melting chloride used on city roads Tuesday -- nearly half the annual allotment -- could erode steel structures of buildings, according to Zhao Nan, a Beijing engineer, was quoted in The China Daily.
The paper cited official statistics that showed the snow-melting agent was responsible for killing 10,000 trees in Beijing and decimating 2.15 million square feet of grassland in 2005.
State press reports said that despite a massive effort to clear the capital of snow that involved over 15,000 workers, many roads remained blocked, while highways into Beijing and in neighboring Hebei and Shanxi provinces were shut down.
miércoles, 4 de noviembre de 2009
Conservation land goes into agriculture in the United States
3 million acres taken out of conservation program
By ROXANA HEGEMAN, Associated Press Writer Roxana Hegeman, Associated Press Writer –
TRIBUNE, Kan. – Surveying undulating grasslands that disappear into the western Kansas horizon, retired farmer Joe Govert pointed out parcel after parcel no longer enrolled in a federal program that pays property owners not to farm environmentally sensitive land.
The arid, wind-swept ground stripped of topsoil by Dust Bowl storms has laid undisturbed beneath a protective cover of native grasses that took two decades to re-establish under the Conservation Reserve Program. But millions of those acres are being plowed again after the 2008 Farm Bill capped the program at 32 million acres.
More than 3.4 million acres nationwide were taken out of the program in September when the owners' contracts expired. Most of them were in Texas, Colorado and Kansas, but hundreds of thousands of acres also came out in Montana and the Dakotas.
The environmental and economic repercussions could extend beyond the nation's Heartland with a greater risk of new dust storms, soil erosion and water pollution. Farmers also worry more grain will mean even lower commodity crop prices.
CRP pays landowners not to farm easily eroded land, while splitting with them the cost of establishing vegetative cover. The goal is to reduce soil erosion and sedimentation in streams and lakes, improve water quality and establish wildlife habitat.
The program has created millions of acres of habitat for quail, pheasant, prairie chickens and other wildlife and established filter strips and forested buffers to protect streams, lakes and rivers from sedimentation and agricultural runoff.
In return, farmers receive annual rental payments on 10-, 15- and 20-year contracts. With payments averaging $51 per acre per year, the program cost about $2 billion in fiscal year 2008.
Govert, 85, put all his land — about 750 acres — in the program in 1987 and got rid of his farm equipment. His contracts expired last month and for the most part cannot be extended.
With the government checks ending and property taxes and other bills to pay, Govert said he has little choice but to break up the ground to farm again — or sell it to someone who will.
"This stuff has roots," he said as he looked glumly across a field in Greeley County near the Colorado state line. "It is well established. This is what hurts. It took years to get it established."
But much of the land can be farmed again without harming the environment, said Adrian Polansky, director of the Farm Service Agency overseeing CRP in Kansas. Modern agricultural practices, such as no-till farming, curb soil erosion. CRP also gives a higher priority for re-enrolling the most environmentally sensitive acres.
Polansky also noted the program was more about the economy than the environment when Congress authorized it amid the farm crisis in 1985.
"We had producers, landowners, banks, suppliers that were in dire financial straits," said Polansky, himself a third-generation farmer. "So in those early years ... It was in a sense an economic rescue-type program to stabilize land prices."
Still, CRP was criticized early on for hastening the decline of rural towns. With fewer farmers tilling the ground, farm equipment dealerships closed and grain elevators consolidated. Many farmers moved away, and government payments often went to absent landowners.
By the time lawmakers scaled down the program in the latest farm bill, CRP protected 39.2 million acres with contracts expiring between now and 2012.
Bringing the land back into production is not expected to reverse the loss of small family farms: Today's growers can farm vast tracts with modern equipment, seamlessly absorbing new acres into existing operations.
But it could stimulate rural economies, with more sales of fertilizer, seed and other supplies; more business for grain elevators; and lower costs for corn, grain sorghum and other feedstocks used by ethanol plants and livestock feedlots. Lower commodity prices also might help reduce food prices for consumers.
Land auctions are already drawing farmers eager to expand their holdings. Govert said land he bought in 1950 for $55 an acre now sells for nearly $900 an acre, and a recent auction averaged as much as $1,100 an acre.
In some areas, change is in the air — literally. Thick plumes of smoke rise from thousands of acres where native grasses are being set afire in preparation for tilling. Most of those rough acres are expected to be seeded into wheat or grain sorghum, hardy crops that can survive in low quality soils and arid climates.
But even as some farmers expand, many worry about the effect on commodity markets when there's already a global grain glut.
"The timing of this is absolutely horrible," said Vance Ehmke, who farms near Healy in west-central Kansas. "You have all these acres coming out (of CRP) when the bottom has come out of the grain market. All we need is more ground going back into production."
By ROXANA HEGEMAN, Associated Press Writer Roxana Hegeman, Associated Press Writer –
TRIBUNE, Kan. – Surveying undulating grasslands that disappear into the western Kansas horizon, retired farmer Joe Govert pointed out parcel after parcel no longer enrolled in a federal program that pays property owners not to farm environmentally sensitive land.
The arid, wind-swept ground stripped of topsoil by Dust Bowl storms has laid undisturbed beneath a protective cover of native grasses that took two decades to re-establish under the Conservation Reserve Program. But millions of those acres are being plowed again after the 2008 Farm Bill capped the program at 32 million acres.
More than 3.4 million acres nationwide were taken out of the program in September when the owners' contracts expired. Most of them were in Texas, Colorado and Kansas, but hundreds of thousands of acres also came out in Montana and the Dakotas.
The environmental and economic repercussions could extend beyond the nation's Heartland with a greater risk of new dust storms, soil erosion and water pollution. Farmers also worry more grain will mean even lower commodity crop prices.
CRP pays landowners not to farm easily eroded land, while splitting with them the cost of establishing vegetative cover. The goal is to reduce soil erosion and sedimentation in streams and lakes, improve water quality and establish wildlife habitat.
The program has created millions of acres of habitat for quail, pheasant, prairie chickens and other wildlife and established filter strips and forested buffers to protect streams, lakes and rivers from sedimentation and agricultural runoff.
In return, farmers receive annual rental payments on 10-, 15- and 20-year contracts. With payments averaging $51 per acre per year, the program cost about $2 billion in fiscal year 2008.
Govert, 85, put all his land — about 750 acres — in the program in 1987 and got rid of his farm equipment. His contracts expired last month and for the most part cannot be extended.
With the government checks ending and property taxes and other bills to pay, Govert said he has little choice but to break up the ground to farm again — or sell it to someone who will.
"This stuff has roots," he said as he looked glumly across a field in Greeley County near the Colorado state line. "It is well established. This is what hurts. It took years to get it established."
But much of the land can be farmed again without harming the environment, said Adrian Polansky, director of the Farm Service Agency overseeing CRP in Kansas. Modern agricultural practices, such as no-till farming, curb soil erosion. CRP also gives a higher priority for re-enrolling the most environmentally sensitive acres.
Polansky also noted the program was more about the economy than the environment when Congress authorized it amid the farm crisis in 1985.
"We had producers, landowners, banks, suppliers that were in dire financial straits," said Polansky, himself a third-generation farmer. "So in those early years ... It was in a sense an economic rescue-type program to stabilize land prices."
Still, CRP was criticized early on for hastening the decline of rural towns. With fewer farmers tilling the ground, farm equipment dealerships closed and grain elevators consolidated. Many farmers moved away, and government payments often went to absent landowners.
By the time lawmakers scaled down the program in the latest farm bill, CRP protected 39.2 million acres with contracts expiring between now and 2012.
Bringing the land back into production is not expected to reverse the loss of small family farms: Today's growers can farm vast tracts with modern equipment, seamlessly absorbing new acres into existing operations.
But it could stimulate rural economies, with more sales of fertilizer, seed and other supplies; more business for grain elevators; and lower costs for corn, grain sorghum and other feedstocks used by ethanol plants and livestock feedlots. Lower commodity prices also might help reduce food prices for consumers.
Land auctions are already drawing farmers eager to expand their holdings. Govert said land he bought in 1950 for $55 an acre now sells for nearly $900 an acre, and a recent auction averaged as much as $1,100 an acre.
In some areas, change is in the air — literally. Thick plumes of smoke rise from thousands of acres where native grasses are being set afire in preparation for tilling. Most of those rough acres are expected to be seeded into wheat or grain sorghum, hardy crops that can survive in low quality soils and arid climates.
But even as some farmers expand, many worry about the effect on commodity markets when there's already a global grain glut.
"The timing of this is absolutely horrible," said Vance Ehmke, who farms near Healy in west-central Kansas. "You have all these acres coming out (of CRP) when the bottom has come out of the grain market. All we need is more ground going back into production."
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