With the 2006 cotton crop mostly harvested by Thanksgiving, growers began to look toward 2007 a year sure to be filled with more questions than answers, especially when it comes to grain production for alternative fuels.
“We expect a 10 percent or more reduction in acreage in 2007 to corn production. The price of corn ($3.86 per bushel as of late November) has been driven up by ethanol production and uncertainties over the farm bill could push reduction well above 10 percent,” says Billy Carter, executive director of the North Carolina Cotton Growers Association.
“I expect we will be in the 700,000 to 725,000 acre range in 2007,” Carter says. His colleagues in South Carolina and Virginia expect similar, though somewhat smaller reductions in acreage.
David Ruppenicker, executive vice-president of the Southern Cotton Producers Association and the Southeastern Cotton Ginners Association, says a high percentage of gins in the Southeast are cooperatively owned by farmers. A gin's profitability is directly tied to its volume, so it is doubtful we will see large cuts in acreage based on corn prices. He agrees that a 10 percent reduction is more likely.
Though corn and cotton are physiologically very different crops, in the upper Southeast the two are closely tied. Much of the land in the Coastal Plain of the upper Southeast is ideally suited to produce two-bale per acre cotton, but not so well suited to high yields in corn. The agronomic reality, some analysis contend will reduce the number of acres of cotton lost to corn. However, soybeans, grown for biodiesel and still selling at close to $7 per bushel may well push the acreage loss to 10 percent or higher.
High prices for corn, soybeans and wheat make grain production attractive to Southeastern growers, but the high cost in investment in cotton and peanut equipment and facilities, plus the high cost of grain harvesting equipment dampen this enthusiasm.
Ruppenicker contends the switch in acreage, however it occurs, will be gradual. “Most farms have gotten so big and have such high investment costs in equipment, making dramatic switches in cropping systems unlikely,” he contends.
How much ethanol-initiated corn prices affect cotton acreage will be directly related to the price of cotton, Carter contends. If cotton prices go up, there may not be significant drops in acreage, he says.
Another uncertainty in the upper Southeast is the progress of construction of ethanol and biodiesel plants. Several have been announced, or are rumored to be in the works, but so far only one, a 108 million gallon ethanol plant in Aurora, N.C. has broken ground. Delays in construction have created some concern whether the plant will be operational in time to use much of the 2007 crop. Dave Brady, chief executive officer of Agri-Ethanol Products, LLC recently announced completion of a financing agreement with a substantial, international company of world wide acclaim. With this agreement, AEP now has financing in place for development of up to 20 renewable energy facilities within the East Coast Region, from the Gulf states to New York.
This agreement positions AEP to aggressively pursue fledgling projects in need of process design, construction, and financing combined with experienced development management expertise. As a result of this agreement, AEP is expanding its Raleigh headquarters staff by hiring experienced engineering and administrative personnel to process the influx of new project submissions and has contracted with Sites Plus, LLC to assist AEP with the site selection process.
At least two new North Carolina ethanol projects, in addition to the Aurora site, are anticipated as a part of the 20 potential facilities. Each of these facilities will produce 108 million gallons per year of undenatured, fuel grade ethanol; 380,000 tons of high protein DDGS and 320,000 tons of CO2, that will be purified and marketed into the food and beverage industries.
Fully operational, three 108 million gallons per year ethanol plants in North Carolina would utilize in excess of 120 million bushels of corn annually. Combined, North Carolina, South Carolina and Virginia produce less than 100 million bushels per year.
One of the biggest impacts that ethanol plants would have on the cotton industry would be on ginners.
First, gin profits are directly tied to volume, so reductions in acreage and hence volume would make it a tough go for some gins.
Second, some gins count on selling cotton seed and hulls for livestock feed for profit. Distiller grain, a byproduct of ethanol production, will supply a plentiful and less expensive source of livestock feed.
Though better suited as dairy feed and aquaculture feed supplements, distillers grain can be fed to beef cattle and poultry and would compete directly with Southeastern ginners for markets.
Despite the potential competition from corn production, optimism is high for the 2007 cotton crop in the upper Southeast. Two bale cotton was common across the region in 2006 and three-bale cotton wasn't uncommon, leaving growers much more concerned about marketing than growing cotton.
Growers in the southern end of North Carolina and in South Carolina were concerned late in the season that boll rot, from rains driven primarily by Tropical Storm Ernesto, would reduce yields. So, far, with over 90 percent of the crop harvested yields have been above expectations.
Not quite ready to call this year's crop a bumper one, cotton experts are saying the 2006 crop in some parts of the Cotton Belt will be above average and near average across the country.
The primary concerns for 2007 are the nagging low prices of cotton and uncertainties over the 2007 farm bill.