Any talk about the general economic health of Georgia must first begin with talk about the economic health of agriculture and agribusiness in the state.
“Not only do we have $10 billion of economic activity that occurs at the farmgate, but we have another $20 billion of economic activity that’s tied directly to agricultural production occurring in Georgia,” says John McKissick, director of the University of Georgia Center for Agribusiness and Economic Development.
McKissick was one of the featured speakers during the recent Georgia Ag Forecast 2007 breakfasts, held at various locations throughout the state.
That $30 billion, he says, makes agriculture and agribusiness the single largest industry in the state of Georgia. “Agriculture here is a lot different than in the Midwest. We have about 75 crops that produce significant farmgate-level income in the state. It’s a tremendously diverse agriculture,” says McKissick.
Last year, for the first time in 10 years, the actual farmgate value of Georgia agricultural production was down from the previous year, he says. “Adding everything together — the opportunities and the challenges — it looks as though 2007 could be a better year for Georgia than 2006,” says McKissick.
The opportunities for 2007 are apparent in higher crop prices for several commodities, he says. “This is the first time since 1996 that we have had these kinds of alternatives in terms of cropping. What we do with these alternatives is a different matter. At least we have these kinds of alternatives for this year. And the real question is for how many years might we have these alternatives?”
At the same time, Georgia farmers must recognize the opportunity also is a challenge, he adds.
“We’re talking about higher crop and oilseed prices almost across the board, but the majority of those crops and oilseeds are used in our livestock sector, and that’s about 60 percent of the total farmgate value for Georgia,” says McKissick.
Another opportunity, he says, is that growers currently are operating under the 2002 farm bill, and that’s very helpful for a crop like cotton. “A further opportunity is that we have had a tremendous increase in demand for small or niche parts of the market, such as fresh, locally grown products.”
One of the challenges Georgia growers face is that of labor, says McKissick. “We have to get to the point to where we have a clear understanding of what the rules are. If not, it’ll kill any opportunities we have in a lot of these growth areas. That is as big a challenge as we can talk about.”
There’s also the challenge of food safety, he says, and everyone is familiar with what problems in this area can do to demand.
“It’s incumbent on us as food producers to do whatever we can to assure the consumer of the safety of our products.”
The growing demand for corn ethanol, says McKissick, also is creating opportunities for farmers who can grow corn. Corn usage, he says, has changed drastically in recent years.
“We doubled corn usage in ethanol production from 1999 to 2002 to just over 1 billion bushels. Then, from 2002 to last year, we doubled again, to just at 2 billion bushels. If the 70 ethanol plants that are in the planning stages actually come on line in the next year or in the next year and a half, that would add another billion bushels of usage or demand on the corn/ethanol side.”
Two billion bushels, he says, is roughly 20 percent of total U.S. production, and 3 billion bushels would about equal the amount of U.S. corn currently being exported.
“This is a domestic-based demand that has occurred in a short period of time, and it does not appear to be going away anytime soon,” he says.
Just a year ago, McKissick says, corn was at $2 a bushel and ethanol at $4 a gallon. “Now it’s just the opposite. Ethanol is $2 a gallon and corn is $4 a bushel. So we’ve had a complete reverse in that situation in about eight months.”
According to University of Georgia analysts, he says, the new ethanol plants that are coming on line could pay as much as $4.25 for a bushel of corn and still break even.
“We’re now at $4 per bushel and going up, so we’re not at a cap or resting point. The bottom line is that corn production has not been able to keep up with the kind of demand we’ve had.
“This year, we will use about 12 billion bushels of corn, primarily because of that large increase in corn demand for ethanol. We produced only a little more than 10 billion bushels. When demand is higher than usage, something has to give, and that ‘give’ occurs in the carryover we had from previous years’ crops. We had a carryover of about 2 billion bushels, so there’s a cushion.”
After this year, however, there will be no cushion, he says.
“For next year, this means we’ll need a heck of a lot more corn planted in the United States.”
In 2006, says McKissick, Georgia poultry growers used 212 million bushels of corn. Cattle farms pushed that usage to 230 million bushels. But farmers in the state grew only 28 million bushels. “Even if we double production,” he says, “it won’t make much of a dent in the deficit.”
Each time the price of corn goes up by $1 per bushel, there’s a $200 million net loss in the Georgia economy, he says. But on the crop side, it’s a very good situation for those farmers who can grow corn, he adds.
To meet the projected demand for corn, U.S. acreage will have to increase by eight to 10 million acres. “It’ll be a fine balancing act for us to plant that kind of acreage, and even if we get it planted, what’ll happen if we have weather problems. We now have a bidding war across all of these crops for acreage, with the exception of cotton.”
Turning to crops that are important for southwest Georgia growers, the peanut supply and demand situation isn’t particularly great, but at least it’s moving in the right direction, says McKissick.
“Production is below usage, but at least we’re headed in the right direction. If 10 percent or so less acreage is planted in peanuts this year, it’ll draw down more stocks. That makes for a better price situation for peanuts in the longer run, but we still have a lot of peanuts left over. The one thing we’re concerned about is what’ll happen with demand.”
The cotton situation unfortunately isn’t moving in the same direction, says McKissick. “We’ll have a lot fewer cotton acres planted this year. Unfortunately, usage this year dropped by about 4.5 million bales. To cover that decline in usage, we would need a 30-percent decrease in acres. But we won’t get that — maybe about half of that. The good news with cotton is that we’re still under the 2002 farm bill.”
Georgia farmers could plant an additional 170,000 acres of corn this year, he says, pushing the total acreage to 450,000 to 500,000.
“We don’t know if our infrastructure can handle that. We need to be able to move that corn into the market relatively quickly. We don’t need a lot of long-term storage in corn.”