Farm country continues to be in a downturn. While it’s clear the difficult ag environment has an impact on America’s farmers, the impact extends further than you might think. It has a ripple effect on global ag markets and farmers across the world.
Because the U.S. is such a large producer and exporter of agricultural products, the country helps establish the outlook of the global marketplace.
Jim Miller, President of Agriculture and Biofuel Policy Consulting, puts it in these terms: “The U.S. effectively establishes the price for a lot of commodities because we are such a big factor globally. That means that when the U.S. isn’t doing well, farmers around the world are also suffering. If the U.S. catches a cold, the world catches pneumonia.”
That’s the current state of agriculture today, where the depression of commodity prices in the U.S. for corn and other major commodities have been down for several years. When corn prices are depressed, it has repercussions across a range of commodity prices and has a detrimental impact on other field crops both in the U.S. and worldwide.
The best solution to get agriculture — both in the U.S. and abroad — back on its feet is increasing the demand for biofuels through growth in higher blends and increasing export markets, economists and industry experts say. U.S. agriculture needs to thrive in order for global agriculture to find success as well.
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The approval in May 2019 of year-round E15 bodes well for the future of the U.S. ag economy — and the global economy to boot. Farm groups and biofuel makers anticipate biofuel sales to rise with the advent of year-round E15. Ethanol is traditionally blended at 10 percent. Implementation of year-round E15 is expected to boost demand for 7 billion gallons of biofuels and an increased grain demand of 2 billion bushels of corn.
To achieve that growth, POET and other industry leaders are working with elected officials in support of a White House reform package that was announced in October that, among several initiatives, would help fast-track adoption of E15 and higher blends. The biofuels reform package would, if realized, help accelerate the rollout of E15 by providing infrastructure support, along with addressing the EPA’s misuse of small refinery exemptions (SREs).
While more work is needed, year-round E15 represents great potential to boost domestic ethanol demand and help the hard-hit agricultural sector in the U.S.
Based on the supply and demand data for global commodities, it is increasingly clear that farmers need a growing percentage of consumers’ gas tanks. Economists point to the need to balance ag demand with supply. Currently, we’re oversupplied with corn and other crops, so commodity prices are weak and farms around the world are suffering, Miller notes.
The growth of ethanol use is key for farmers’ success in the U.S. and abroad. “We need to increase the production of ethanol and find good markets both at home and around the world,” Miller says. While China talks continue, domestic demand for crops can and should be bolstered with more biofuel production.
Some may point to exporting more corn as the answer, but we haven’t seen any major shifts in the export demand for corn in decades. The significant change and opportunity to grow demand for corn is in the biofuels industry.
Growing biofuel demand is also the best path forward to prevent the need for further farm subsidies in the U.S. Over the last 20 years the growth of biofuels has reduced the need for farm subsidies. Now that biofuel growth in the U.S. has plateaued, supply is again outpacing demand and subsidies are being implemented. We need to continue to grow biofuel demand to balance ever-increasing grain supplies with demand.
Along with growing demand through E15 and higher ethanol blends in the U.S., there also is opportunity to increase demand for U.S. ethanol in overseas markets. POET continues to work with industry advocates including Growth Energy, the biofuel industry’s largest trade association, and the U.S. Grains Council to encourage ethanol exports to overseas markets. Selling biofuels in new markets including China, Indonesia, Mexico, Brazil, India and Canada could make a big impact in helping the farm industry by moving excess corn.
The U.S. stands ready to effectively supply global market needs, says Brian Healy, Director of Global Ethanol Market Development for the U.S. Grains Council, but he also stressed the importance of ensuring open trade and access. The growth in global ethanol markets is a win-win for the U.S. as the low-cost global producer of ethanol, Healy said.
These ethanol promotion efforts have helped increase exports. In 2017-2018, a record 1.62 billion gallons of U.S. ethanol, or 574 million bushels in corn equivalent, were exported to 74 countries. That number continues to grow as more countries identify and want to take advantage of the benefits of ethanol.
Continuing to grow biofuel demand is a path forward that boosts returns for U.S. farmers and also will help strengthen commodity prices for farmers across the world.
