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A long 'bull' run-Ray Grabanski

Ray Grabanski 06/23/2011 @ 2:21pm President, Progressive Ag www.progressiveag.com

It's been a long bull market for grains, with prices rising for almost one year straight, on the production problems around the world, and demand. 

The high use of grains from the U.S. resulted from the lack of availability of grains from the rest of the world.  With high prices this spring (corn running to new all time, all world highs two weeks ago), we also are starting to limit the demand for grains - the job the market must do on a short crop year.

We are also seeing some changes in policy type decisions that the US policymakers can do, with one the recent vote by the Senate to repeal the blenders credit and import duty on ethanol - a huge change in policy by some policymakers.  Although Pres. Obama is likely to veto this bill (and prevent it from becoming law), this is a potential major blow for the corn growers who have effectively promoted the development of biofuels to replace the foreign oil which the US has become so heavily reliant on.  

There is a third alternative to keep corn prices relatively low in the year's ahead, without adversely impacting the biofuels initiative and the benefits of lower gas prices for consumers which we've accumulated over the recent years. This also has the possibility of reducing federal budget deficits by reducing government spending as well. 

The solution is to simply allow the economic use of CRP acreage for the production of grains, allowing it to go back into production without penalty before the contract is up for renewal or expiration.  There are about 32 million acres of CRP, of which Pro Ag suspects that 10 million or more is decent land that could produce pretty good crops overall.  

Leaving these acres idle while the world is screaming for more production through current highs prices doesn't make economic sense!

This would accomplish two things: 1) Allow land that can viably raise good crops economically to come out of CRP and be put back into production when prices are high, and 2) For every acre of CRP, there is a significant payment from the federal government to the producer to keep the land idle.  So for every acre released from CRP, its more money our country can save.  To put into CRP land that was being paid more subsidies to grow the crop made sense 25 years ago, when subsidies for the production of the grain was half the income from the land.  Today, prices are so high that the income from the land dwarfs any production subsidies that are received.  

So now, when prices are high, perhaps it makes sense to release the land for production of grains again!  At least, more sense than canceling all supports for ethanol because grain prices have turned higher.  With about 10 million acres of land available and likely economical for production of grains, this makes more sense as it increases the supply of grains, lowers food prices, allows fuel prices to stay low, retains the strong domestic ethanol industry, and also reduces the federal deficit all in one full swoop.  Sometimes, policy makes sense, and releasing CRP acres early without penalty won't cost anything, and will likely end up saving the government a whole lot of money as well as collecting more taxes.  Sounds like a win-win situation! 

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