, DOW AgroSciences – Brian Barker (U.S. Seeds General Manager), Novozymes – Patrick Patterson (VP Business Operations Americas), Producer – Jerry Demmer, Big River Resources – Ray Defenbaugh (CEO)');void('');)
Participants: POET – Jeff Broin (Founder and Executive Chairman), DOW AgroSciences – Brian Barker (U.S. Seeds General Manager), Novozymes – Patrick Patterson (VP Business Operations Americas), Producer – Jerry Demmer, Big River Resources – Ray Defenbaugh (CEO)
VITAL: We saw a lot of growth and change in the mid-2000s as crop yields hit a number of different records. We saw farm income setting records and almost every metric you can think of for agriculture saw a boom period. I’d be interested in hearing from each of you what sort of things you thought helped contribute to that period. What are the things that drove success in agriculture in the mid-2000s?
DEMMER: Well the increase in yields, obviously the ethanol industry has put a lot of dollars in rural America. It also has been a boom for not only machinery but for the seed industry and putting those dollars in there for better research. So the increase has been, again, for rural America. Whether it’s the landowner you’re renting land from…that money flows around. It’s the ethanol industry that’s really done wonders for rural America.
BARKER: At the end of the day you’ve got food and fuel that have to be consumed by a global population. We believe that the farmers here in the United States will be able to supply that.
PATTERSON: It certainly drove our investment profile. Similar to what you said, we take a long-term view and said we’ll look out to 2050 and imagine a world with 9 billion people. And then – where’s the food? Where’s the fuel? Where’s the feed going to come from for that population?
VITAL: How about our ethanol producers?
BROIN: My father, back in the mid-1980s when corn was about $1.30/bushel and it was costing him about $2.70 to grow, saw that we needed a new demand for starch and for corn and built his first ethanol plant. What I see is that ethanol did tighten up the commodity complex, it did create a tremendous run for the farmer. And I think that looking at all the trends I see, food is not enough to use up the supply. So basically we are going to have to see an expansion of biofuels in gasoline in the U.S. From 10% to 15% and beyond that, we better be looking at 20-30% and even 50% if you’re looking out 20, 30, 40, 50 years. I think there’s a lot of potential there.
DEFENBAUGH: If one guy can produce 300 bushel corn and 150 bushel beans, two guys are going to be able to someday. So if that national average keeps going up and short of a drought, I’m sure it will. And if you overproduce, which we can – you better have a place to go with it. You don’t need a place 10 years from now, you need a place today. And so with agriculture, it doesn’t matter who’s supporting agriculture, it may be the farmer, it could be the grocery keeper, it could be the man selling machinery or chemicals. The whole rural economy is dependent on the success that we find a solution to supply and demand evening out. And ethanol is an important part of that I think.
DEMMER: I agree with Ray. Right now we’re about $3.25 – about 70 cents below the cost of production per bushel of corn. Not a good situation. So we need to find uses for that commodity that we’re growing. You can’t run 2 or 3 years in red – you got to do something.
BROIN: I think as well we need to straighten out the fact that people believe that somehow we use up all of the corn to make ethanol. When, in fact, we only use the starch portion. So the counterintuitive thing is if you take corn to ethanol you increase the price of food. No – no, you don’t. Because you lower the price of fuel and you also lower the price of food because the protein would have never been on the market.
DEFENBAUGH: If you go back to agriculture when we farmed with horses – in my young days there were still people farming with horses, I got in on some of that. Now, the amount of ground that was set aside for the feed for those horses is no different than the amount of ground we’re using today to make ethanol. Instead of oats and hay, we’re putting it through ethanol. So the argument food for fuel is invalid as far as I’m concerned. And productivity on what we are producing is so much higher it even makes the argument sillier, really.
PATTERSON: People would be surprised to hear that we can out produce what we consume. I don’t think that message gets through to people very well. And then I think about if it’s a distribution issue then? To get the food to where it needs to be? Because obviously there’s people who aren’t getting enough and/or how do we create these markets to find an outlet for the corn?
BARKER: Part of the challenge when you go outside the U.S. is you can produce a lot of grain but that grain doesn’t always find its destination because of politics, because of corruption, because of a lack of infrastructure. But the policy piece of this thing as it goes on in the future is going to be pretty interesting. From everything you’re seeing today in ethanol with the RFS (Renewable Fuel Standard) and those types of policies to export policies, trade policies when countries can determine what gets traded, what gets used.
BROIN: One thing that has changed, and I assume you are well-aware of this, is that ethanol did drive some new world production. So that when we did see that drought, it was really hyped-up in the press…
BARKER: Yes it was.
BROIN: One of the things I look at, is that recently we actually had sustainable grain prices for about 5 years. It was awesome. My entire life we probably had that a couple years. So it’s really unique that we saw that 5 year period. The nice thing is, when we were profitable in grain, so were the developing nations. So the bad thing about us shipping grain around the world subsidized, which we did for over 40 years, is that they then can’t produce it profitably. So they can’t buy seed, they can’t buy fertilizer. So I was really excited to see grain above the cost of production for one of the first times in my life, so the farm made a profit in the U.S. but also the developing nation farmer made a profit.
BARKER: It’s very fragile.
BROIN: Yes, but if we can increase the percentage of ethanol in gasoline, and keep those prices above the cost of production, watch what can happen. This is what bothers me. Now we’re not expanding ethanol into gasoline, thanks to our own government holding us back in a lot of cases. And we’re not keeping that price above the cost of production. If we were at E15 today, we wouldn’t have this price problem. And the real sacrifice is going to come in that developing world because the government may step in and help here, but they’re not going to step in and help there.
DEFENBAUGH: The old cliché of “rising tide raises all ships” – markets could not only help the American farmer but agriculture in general, which there’s a lot of hungry people around the world so we should certainly recognize that what you’re saying is true.
DEMMER: Without a doubt, ethanol has been successful which is why it’s an easy target.
BROIN: We all know that when a commodity is one gallon or one bushel oversupplied, you’re going to be producing at the cost of production. Right? We all know that. Well the oil industry knows that as well. And they know that if we take 5 more percent of their market they’re going to that tipping point. And they will do everything in their power to stop that from happening.
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DEMMER: We have a good message to talk about the farmers, and also with the ethanol, but how do you get that across politically? To the consumer? That’s the
challenge that we face – we have that good message that we’re producing not only a safe product, but an abundance of product. It just frustrates me to no end when farmers get bashed in the media.
BARKER: To your point, if there are great things happening, how do you educate them about it? There’s a big university up the road from us – I didn’t go there so I’m not allowed to say the name. We were up there for a 30-year strategic conference and I was sitting with them and we were going through this 3-day seminar talking about exactly this same thing. Where’s agriculture going? What’s the biggest problem in agriculture? This is one of the top ag universities in the world and the basic problem that everyone came up with was exactly what you just said. There’s tons of great things happening and the farmer’s incredibly capable so those aren’t the issues. The issue is how do you convince the general public? If you look at generations past, people were either right off the farm, still on the farm or very close to it. How do you convince a population of consumers that there are great things going on – these are great technologies, they’re safe technologies, they’re perfectly good. Very few actually understand that there actually is already 8-10% of ethanol in the gasoline they’re buying today and they don’t even know it. How do you go out and actually get a population to start to understand, at least in a balanced way, so they can think in a balanced way about the things that are really going on. The number one answer they came up with is going to be education – almost right from the beginning you’re going to have to build this into education with young kids and expose them to agriculture. Show them where the food comes from.
BROIN: Certainly the kids are part of it, public relations is a big part of it because I guarantee you there’s an army out there not wanting us to grow in this business. And then advertising, because you can’t wait for all of those kids to grow up.
BARKER: You’ve got to do it today.
DEFENBAUGH: Now maybe we’re handed a tool somewhere in this EPA announcement on the RVO (Renewable Volume Obligation) – because the farmer is producing below the cost of production and he’s going to be more willing to join in the battle. He’s going to be more willing once he starts losing the money that you were talking about – saying we got to do something different or I can’t last. Now people think we’ve got plenty of fuel, which is kind of not true if we’re still dependent on exports. The front page of the Wall Street Journal talked today about OPEC losing its power. If you believe that, then I want your address for Santa Claus because you believe in that too. To me, my basic thought is we’re dependent on other nations for our fuel and we’ve got the most prosperous agriculture anywhere in the world, ever. And yet, most of the time that I farmed, the economics, the profit was dependent on government payments – like your dad getting those checks too. Any industry that’s dependent on government payments, is not sustainable. It might go on for awhile, but it’s not sustainable. If we destroy agriculture in this country by unprofitability, and we’re dependent on other people for our fuel, as well as for our food, this nation will be brought to its knees.
DEMMER: Jeff alluded to it earlier. The reason that your dad built the first plant was because of the price of corn.
BROIN: Set aside acres, storage payments, he was doing all of that. What year did we file the E15 waiver? 2008? So seven years, we filed the E15 waiver and we’re still fighting for E15 to get into gas. I thought that would take 1-2 years. So that’s all true, but right now you’ve got a very powerful foe in the oil industry that’s using the government to keep us out of gasoline.
DEFENBAUGH: It’s not a free market.
BROIN: It’s not a free market. So when you really look at what’s going on, it feels like ethanol vs. oil, right? But it’s not, it’s agriculture vs. oil. The problem is that sometimes I don’t think agriculture knows we’re in the fight. Oil does. Oil knows who their enemy is. But agriculture’s got to figure out who’s on the other side trying to stop their growth – trying to damage their markets. It’s really the oil industry.
DEMMER: We need E15. We need higher blends – absolutely.
BROIN: It’s 2 billion bushels of new corn demand. We need that 2 billion bushels of corn demand the next several years, and it needs to come thru E15.
DEFENBAUGH: Those are good, strong arguments. And if you’re ag-background, rural-oriented, you buy into it. But there’s other really good reasons for it too that maybe the consumer can put his arms around – clean air, energy independence, defense. Especially the clean air.
PATTERSON: Our models say the world has a capacity to supply ¼ of the world’s transportation fuel with renewable fuel sources. And a correspondent decrease in CO2 to go with it. That’s such a simple and obvious message – and it’s an easy message to explain. This industry in particular isn’t sitting back and waiting. I mean you’ve got several initiatives to try to get to the consumers with knowledge, not the least of which is Prime the Pump and bringing some higher ethanol-inclusion ratios to the public. And you’re doing that kind of around the inertia that you’re facing to push back.
BROIN: Absolutely. And we’ve had some good partners, both of your companies have been good partners. We probably need more ag partners. And so if we can all get together behind the right initiative. We’ll get the job done.
DEMMER: I think Ray hit on something earlier – when prices are below the cost of production, now we should be able to get some farmers motivated. Not everyone wants to be out front and I understand that but you got to be motivated to call your representatives out in D.C. saying we can’t do this.
DEFENBAUGH: That’s what we need. If agriculture would work together as unit – think about the chemical, the seed, the manufacturing, corn, beans and ethanol. You put them together and we’d be a formidable foe. Almost undefeatable. But we’re having trouble getting that coalition. And it’s like, I don’t know if you ever farmed with horses, but if you don’t have a team that pulls it together, you’re going to pull that plow, not for very long, and you’re going to wear them both out.
DEMMER: But how do you get that coalition, Ray?
DEFENBAUGH: I don’t mean it the way it’s going to sound, but it’s part of the good of what’s happening here because adversity is not always bad. I’ve always said there’s more opportunity in adversity than there is in prosperity. Adversity will cause people to reexamine and say we got to do something different. There’s an old cliché going back to Revolutionary War time, I think Thomas Jefferson used it. “One man with courage is a majority.” You think about that. Somehow we need to motivate several to be that individual. But you take one person that’s really going to fight this – one person that’s a corngrower, one person that’s in machinery. But the people that say “I accept the fate the way it comes,” oh woe is me. One person with courage is a majority. That’s where we need to be in the ag industry today.
VITAL: This has been an interesting conversation. I appreciate everyone participating in it. Heard some great opinions from a lot of people who care a lot about agriculture and certainly starting at the right place here. Hopefully we can keep some of these ideas in mind as we go forward and find new ways to work together and have everyone be successful.
