GET A GRIP ON NEW RURAL ECONOMY — FUELED BY RENEWABLE ENERGY
For anyone driving across the Midwest via interstate, recent changes in the rural landscape may seem fairly subtle. To the untrained eye, roadways are still sandwiched between seemingly endless rows of corn and soybeans, nestled alongside rolling pastures and the occasional livestock operation.
However, a closer look reveals a much different landscape emerging across parts of rural America. It's a renaissance of sorts, creating new business models and fundamental shifts in the way farmers operate. Several factors are driving these changes: new technology, access to information via the Internet, and a renewed interest in entrepreneurship. But the key driver for the foreseeable future is the development of renewable energy.
"As just about anyone in Iowa can tell you, those corn, soybeans and hogs you see are just another way
of saying ethanol, biodiesel and methane," says Tom Dorr, Under Secy for Rural Development at USDA and a native of Marcus, IA. "Add wind and solar energy to the mix and you have an entirely new business portfolio for rural America."
"It is clear that we are in the very early stages of a fundamental shift in our nation's and indeed, the world's, energy resource base," Dorr adds. "This won't happen overnight, but it will happen. There are remarkable opportunities ahead for individuals, for businesses, for states and nations that are prepared to lead."
The changes aren't limited to the Midwest. New sources of renewable energy are starting to pop up across the country in places like New York, Virginia, Georgia and even oil-rich Texas, which is now the nation's largest producer of wind energy, also.
Crop mixes are also changing dramatically, as renewable fuels drive demand. In some areas, "King Cotton" is being replaced by "King Corn." For example, In Mississippi, corn acres jumped from 340,000 planted acres in 2006 to 980,000 acres in 2007, while cotton acres dropped from about 1.2 million acres down to 680,000, according to the USDA's National Agricultural Statistics Service.
AGRIBUSINESS STEPS UP
Several agribusiness leaders are already a step ahead of these changes, driving the development of new technologies and renewable energy systems. For example, Monsanto, Pioneer and several other seed companies are producing ethanol-specific corn hybrids that contain higher levels of fermentable starch. A bushel of high fermentable starch corn is likely to yield 3% to 5% more ethanol than a bushel of conventional corn, according to the National Corn Growers Association (NCGA).
But that's just the tip of the iceberg, in terms of research. DuPont is working with Deere & Co. to develop a biorefinery that utilizes corn stover. Archer Daniels Midland is looking at ways to process more of a corn kernel into ethanol. Broin has developed new processing techniques for ethanol production, creating greater livestock feed value from ethanol by-products.
"Biofuels are experiencing incredible growth and that is going to accelerate," said James C. Collins, Jr., VP/GM of DuPont Crop Protection, in a speech. "Science and innovation in seed and chemistry will be key to increasing agricultural productivity to levels needed to meet the demands. At the same time, biotechnology is increasing the productivity of the processes used to make biofuels and increasing the options for what can be used as feedstock.
"Bringing together science from many different disciplines is the key to overcoming those challenges," Collins said. "That's why DuPont is positioned across the food, feed, fuel, and materials value chain where it gains market insight to address customer needs and find the most sustainable solutions."
NEW DYNAMICS EMERGE
While the technology surrounding renewable energy is changing rapidly, it's more important than ever to understand the dynamics of this rapidly evolving sector, says Mike Jackson, Pres/CEO of ABG, Indianapolis, IN. More importantly, adjustments in your thinking and business strategy must be made soon in order to capitalize, he adds. "As everyone engaged in agriculture knows, growth in renewable energy and biofuels in particular create both opportunities and challenges depending on the industry segment.
"Many see 93 million acres of $3+ corn as an incredible win," Jackson adds. "However, as we have seen, there are differing perspectives. If you feed hogs, you might see increased input costs and potential supply disruptions. Some are still heavily investing in what they view as an entirely new and sustainable industry explosion, while still others are concerned about managing capital risk associated with the overbuilding of ethanol plants.
"This diversity of perspective and the resulting decision complexity may have seemed unthinkable just a few years ago. To succeed in this environment, agribusinesses and producers must be open minded, plan for potentially divergent futures and be willing to change their business model."
Over the last decade, ABG has provided strategy and business planning, market analysis, training and technology for a broad spectrum of agribusinesses to help them adjust to a changing world. The firm recently created Renewable Energy Insights, Inc., a center devoted to helping companies and organizations engaged in this rapidly growing field.
For example, the Ethanol Promotion and Information Center (EPIC) wanted a cost-effective way to train automotive technicians who will be servicing flex fuel vehicles. ABG's Renewable Energy Insights practice area developed an easy-to-use training tool, which provides automotive technicians across the country with the potential for ASE credits for learning the technical aspects of ethanol and engine performance.
"As ethanol demand continues to grow, more and more auto technicians need to be knowledgeable in how this renewable fuel operates in a vehicle," says Tom Slunecka, Exec Dir of EPIC. "We have received many positive comments from automotive technicians and other ethanol industry leaders who been able to utilize this new training tool."
POTENTIAL AND RISKS
As everyone who witnessed renewable energy's up and downhill battles during the 1970s and early 1980s recognizes, the pitfalls of playing in a new, rapidly changing marketplace can be painful.
The tremendous expansion of these renewable energy sources raises a couple of key questions:
• Where will ethanol producers get the corn needed to increase their output?
With a corn-to-ethanol conversion rate of 2.7 gallons per bushel (a rate that many state-of-the-art facilities are already surpassing), USDA's Economic Research Service estimates that the U.S. ethanol sector will need 2.6 billion bushels per year by 2010 — 1.2 billion bushels more than it consumed in 2005.
• How will the livestock sector be impacted as the demand for corn increases?
Both the dry-milling and wet-milling methods of producing ethanol generate a variety of economically valuable co-products, such as distiller's dried grains with solubles (DDGS), which can be used as a feed ingredient for livestock. Use of distiller's grains in animal production lowers the use of corn and protein supplements, like soybean meal. Each 56-pound bushel of corn used in dry mill ethanol production generates about 17.4 pounds of DDGS, according to USDA's Economic Research Service. Thus far, cattle have been the primary users of DDGS as livestock feed, but larger quantities of DDGS are making their way into the feed rations of hogs and poultry.
NCGA conducted an analysis of future corn use dynamics to address some of these questions. Based on expectations for higher yields, incremental acreage shifts, new technology and the displacement effect of distillers grains, NCGA estimates that corn growers could harvest a 15 billion bushel corn crop by 2015-2016. Under this scenario, about 5.5 billion bushels would be available for ethanol conversion — equal to roughly 16 billion gallons of ethanol, or 10% of the nation's expected gasoline demand.
NEWEST CASH CROP
For agribusinesses who understand these new market realities, the payoff could be huge. Under Secretary Dorr is clearly bullish on the future and the role that new technology can play in providing increased production efficiency for all forms of renewable energy.
The potential for growth in this industry is enormous, he emphasizes. "This year, ethanol will absorb 20% of the corn crop. We are now refining more corn than we are exporting. Biodiesel production has also grown dramatically from about 500,000 gallons in 1999 to 250 million gallons in 2006."
For rural America, renewable energy doesn't just mean an extra 5 or 10 cents a bushel on corn or soybeans. It means creating new wealth in rural America, new markets, new industries and new jobs, adds Dorr. "It is not only our newest cash crop, it is rural America's biggest new growth opportunity in many years."
Wyant is Editor of Agri-Pulse, a newsletter covering farm and rural policy. She also serves on the Steering Committee for the 25x'25 Renewable Energy Alliance and on the Board of Advisors for ABG, an Adayana company. For a free Agri-Pulse trial subscription, go to www.Agri-Pulse.com.