DM&E Expansion and the farm economy

[Anonymous]

USDA: DM&E Upgrade Could Save $240 Million
Friday November 3, 12:28 pm ET

SIOUX FALLS, S.D., Nov. 3 /PRNewswire/ -- The following is being issued by GOTRAC:

National, Minnesota & South Dakota agriculture leaders praised a study conducted by the US Department of Agriculture showing that the proposed Dakota, Minnesota & Eastern (DM&E) Railroad upgrade and expansion could lead to $240 million a year in budget savings as a result of better corn prices and lower farm payments.

According to the report, the added competition, efficiencies and access to markets offered by the DM&E Railroad upgrade would lead to lower transportation rates for producers, improving their bottom line. As a result of lower costs and better grain prices, payments from two federal farm programs could be reduced by $240 million a year on corn raised in Minnesota and South Dakota alone. USDA considered savings to two programs for corn production: Counter-Cyclical Payments and Market Assistance Payments.

A copy of the report can be accessed at http://www.gotrac.org/usdareport.

"USDA has provided yet another reason why the DM&E upgrade and loan makes sense for taxpayers," said Rick Tolman, CEO of the National Corn Growers Association, St. Louis, MO. "The benefits to farmers and rural economies have been clear from the start. This adds to the factual case for making this project a reality. We appreciate USDA's analysis and consideration and hope this helps bring the loan to approval soon."

Additional savings could be realized through reduced payments on other crops such as wheat and soybeans, and by considering other states in the region, such as Iowa.

"This study establishes a floor for how much can be saved from farm programs," said Reid Jensen, President of the South Dakota Corn Growers Association, Burbank, SD. "If you factor in crops like soybeans and wheat, you could see even more savings. The federal railroad loan program is there for a project like the DM&E upgrade -- projects that build more transportation capacity. In the end, it will save taxpayers hundreds of millions of dollars."

"The positive economic impact of the rail upgrade alone makes the case for the loan," said Randy Rieke of the Southern Grainbelt Shippers Association of Minnesota, New Ulm, Minn. "USDA's study now shows the DM&E rail upgrade and loan simply make sense. Southern Minnesota is hungry for competition, eager for opportunity and ready to grow with this project in place."

The DM&E has applied for a $2.3 billion loan through the Federal Railroad Administration's (FRA) $35 billion Railroad Rehabilitation and Improvement Financing (RRIF) program. The RRIF loan will be fully secured by the assets of the DM&E and will only be made if it can be repaid with interest. The Congressional Budget Office has established that the RRIF program does not have a budgetary impact, in part because the program is self-funded through fees paid by participating railroads.

The DM&E Railroad's upgrade project will rebuild 600 miles of existing DM&E track and add 260 new miles of main line construction to low-sulfur coal mines in the Powder River Basin of Wyoming.

Approximately two-thirds of the $6 billion project will be privately funded. The project would create an estimated 10,000 direct and indirect jobs. The DM&E plans to begin construction in 2007 and to be operational by 2010. DM&E has negotiated community partnership agreements with 55 of the 56 communities on the line, addressing quality of life, traffic and safety needs.

---

PS.  Corn prices hit a ten-year high this month.

[MP173]

Yes, corn prices are moving upward.  There is a forecast of even higher 07 prices as demand will probably outstrip supply, based on the ethanol plants on line and new ones coming on line.  This year's production of corn is about 11billion bushels and next year's demand is forecast at 12 billion.

Good times in store for our ag friends.

ed

[Anonymous]

Interesting that you posted this now.

Just today I was shocked to see 50# sacks of shelled and cracked corn approximately double what they were last year at this time. Of course, that was at a farmers co-op  elevator right in the middle of grow land, so the transportation costs were on me, since I was picking up.

Pretty funny because the guy selling it to me was crying the blues like it was totally out of his hands, blaming it on wall street.

And after picking up I got to thinking about why he would be at anyone else's mercy, price wise.

If anything I'll bet he was crying all the way to the bank.

Said a lot of farms around the area that hadn't planted corn in years, were seriously considering it for next year.

[solzrules]

Yes, corn prices are moving upward.  There is a forecast of even higher 07 prices as demand will probably outstrip supply, based on the ethanol plants on line and new ones coming on line.  This year's production of corn is about 11billion bushels and next year's demand is forecast at 12 billion.

Good times in store for our ag friends.

ed

And thus begins the problem with ethanol.  As more people use it the price will rise.  I wonder if it will rise to the point where it prices itself right out of the market?

 

[nanaimo73]

 And thus begins the problem with ethanol.  As more people use it the price will rise.  I wonder if it will rise to the point where it prices itself right out of the market?

In that case the goverment should subsidize farmers to switch to corn rather than subsidize farmers to grow weaker crops. Is this being done already ?

[MP173]

Several points:

1.  My brother in law is just finishing up about 1500 acres, majority of it is corn.  He indicated there has been a recent run up in corn the last month, which occured after the meltdown in natural gas which lead to the big Hedge Fund shutting down because of natural gas losses.  He said that there was speculation in corn as the traders had to do something with their money.  I sorta discounted what he said at the time, but the more I think about it...sorta makes sense.  He is usually pretty accurate in his assessments of ag economy, plus he is a railfan.
2.  Higher corn prices might push ethanol out of reach, but I would be more concerned, if I were an investor in LOWER gasoline prices. I do not know the break even point where ethanol becomes a player, but gasoline prices are 2/3 of what they were a short time ago.  When gas was $3/gallon there was lots of talk about ethanol.  I know there was a regulatory change moving out of one additive to ethanol, but I am not that knowledgeable about the entire economics and politics.
3.  That being said, ADM is a huge player in the ethanol field and has major plans for construction of three new plants.  Their stock price shot up during the run up in gasoline prices but now has dropped off of the highs.  ADM is very connected politically, typically with both parties.  I dont know if ADM's stock price drop is due to higher corn, lower gasoline or both.
4.  Out here in the three I states (Iowa, Illinois, Indiana) corn is the major crop with soybeans being second and wheat a very distant third.  I think at $3 and above corn prices, there is very little subsidy needed to entice farmers to grow corn.  The insentive is in the price, which normally is in the $2 range.

Saying all of that...I am not a farmer (but I own a farm) nor am I in agbusiness, so my economic views might be off somewhat.  Dont want to come off as an expert and will gladly accept corrections/additions without getting into a flame throwing contest, as long as it is not about Montana wheat.

ed
4. 

[eastside]

MP173:

In the current issue (November 13, p. 60) of Business Week there's a long article "Harvesting Green Power" on how farmers in the Mid West are hitting the jackpot by going green.  In particular, it focuses on a coop in Minnesota that started an ethanol plant in the late '90s. "Eight years ago, a $10,000 stake has earned a total of $54,000 in dividends, and such an investment is now worth $55,000."  Some of them also installed wind turbines.  It indicates that havesting wind power and growing grain for ethanol could have a dramatic effect on farm incomes.

It discusses the effect ethanol will have on subsidies and the price of corn.

It's also on their Web site (but you have to be a subscriber).

[SALfan]

Yes, corn prices are moving upward.  There is a forecast of even higher 07 prices as demand will probably outstrip supply, based on the ethanol plants on line and new ones coming on line.  This year's production of corn is about 11billion bushels and next year's demand is forecast at 12 billion.

Good times in store for our ag friends.

ed

What are corn prices right now?  The last I read about them, farmers were still praying for $3 per bushel . . . the same price they were praying for in the early 1970's.  Don't get me wrong, I hope prices go up enough for farmers to make some money, but will believe it when I see it.  I don't know of anything else that costs the exact same amount it did 30 years ago.

[Anonymous]

Several points:

1.  My brother in law is just finishing up about 1500 acres, majority of it is corn.  He indicated there has been a recent run up in corn the last month, which occured after the meltdown in natural gas which lead to the big Hedge Fund shutting down because of natural gas losses.  He said that there was speculation in corn as the traders had to do something with their money.  I sorta discounted what he said at the time, but the more I think about it...sorta makes sense.

ed
4. 

Thanks for the additional info...the Co-op guy at the elevator was talking about the "hedgefund" involvement as well,  so there probably is a strong likelihood there. I was just too bummed out at the time at having to pay $4/sack for corn to press for details. What you say makes perfect sense though.


Interesting now the way America's addiction to oil is on a collision course with the food supply.  Be interesting to see which choices are made.

[Anonymous]

What are corn prices right now?  The last I read about them, farmers were still praying for $3 per bushel . . . the same price they were praying for in the early 1970's.  Don't get me wrong, I hope prices go up enough for farmers to make some money, but will believe it when I see it.  I don't know of anything else that costs the exact same amount it did 30 years ago.

Commodities prices

Of course, I'm sure that assumes a certain minimum  quantity.

[Datafever]

What are corn prices right now?  The last I read about them, farmers were still praying for $3 per bushel . . . the same price they were praying for in the early 1970's.  Don't get me wrong, I hope prices go up enough for farmers to make some money, but will believe it when I see it.  I don't know of anything else that costs the exact same amount it did 30 years ago.

Commodities prices

Of course, I'm sure that assumes a certain minimum  quantity.

The current price of $3.50 a bushel is the result of a huge runup over the past couple of months.  Back in the spring of '04 the price managed to reach $3.20 a bushel, but the price generally has hovered between $2.00 and $2.50 a bushel over the past five years.  The commodities price is for #2 Yellow, 5000 bushels per contract.

[Murphy Siding]

Interesting now the way America's addiction to oil is on a collision course with the food supply.  Be interesting to see which choices are made.

     In the past, a lot of corn was grown and fed to livestock.  The corn that is used for ethanol produces a *mash* bi-product, that is fed to ... .....livestock.  So I don't think we're messing too much with the food supply at this point.  It is interesting the way America's addiction to oil is on a collision course with the farm price/subsidy structure in our economy.

[Anonymous]

So I don't think we're messing too much with the food supply at this point.  It is interesting the way America's addiction to oil is on a collision course with the farm price/subsidy structure in our economy.

Well, I'll bet the cattle farmers waste no time passing this added cost along to the consumer.

SO, I suspect there may be some relationship, very soon.

I wish I could recall the specifics better, but a childhood friend had bought a derelict  120 acre farm for cheap, years ago.  He was using some "don't plant" subsidy to in effect make his mortgage payment, and he was working to pay his other living expenses. When his neighbor called it quits a few years ago, my friend bought his farm (80 more acres) and used the same subsidy to pay for that land.

I recall in 2002, my friend was saying that the subsidy program had expired for him, that he was thinking about renting the land to someone who actually wanted to grow crops.

My bet is, my buddy is about to start growing corn.

[Murphy Siding]

So I don't think we're messing too much with the food supply at this point.  It is interesting the way America's addiction to oil is on a collision course with the farm price/subsidy structure in our economy.

Well, I'll bet the cattle farmers waste no time passing this added cost along to the consumer.

     I'm not sure they have another option.

[Anonymous]

     I'm not sure they have another option.

Ohhh, silly me.
 When you wrote earlier :" So I don't think we're messing too much with the food supply at this point"  I took that to mean you were saying  impact was unlikely.

[jeaton]

Guys!  Remember? Livestock prices are made in very active markets.  You know-supply and demand stuff.  There are no "feed surcharges" added to livestock prices and the passing it along comment would have them falling on the floor. 

[Murphy Siding]

     I'm not sure they have another option.

Ohhh, silly me.
 When you wrote earlier :" So I don't think we're messing too much with the food supply at this point"  I took that to mean you were saying  impact was unlikely.

     OK, I see what you're saying.  I don't think there will problems with supply, per say.  Before, the grain was going to the cows.  Now, just the mash goes to the cows.  As the price of corn goes up, due to demand by ethanol plants, more farmers will plant corn to fill that need. It doesn't divert any more grain from human mouths to animal mouths than it did before.I believe there will be some excitement in the area of state ethanol production subsidization in the near future.

[Anonymous]

     OK, I see what you're saying.  I don't think there will problems with supply, per say.  It's the prices and/or subsidization of the prices that I see causing some excitement.

Now that you mention it, I guess I could have been more clear.

No,I don't forsee famine as a result.

I'm just thinking that our infatuation with driving is about to start making eating more expensive.

I guess the heavy drivers can always settle for range fed beef?

[SALfan]

What are corn prices right now?  The last I read about them, farmers were still praying for $3 per bushel . . . the same price they were praying for in the early 1970's.  Don't get me wrong, I hope prices go up enough for farmers to make some money, but will believe it when I see it.  I don't know of anything else that costs the exact same amount it did 30 years ago.

Commodities prices

Of course, I'm sure that assumes a certain minimum  quantity.

Thanks for the info.  Don't mind saying I'm shocked and amazed, but it's great to know that corn prices are up somewhat.  Hope the farmer is getting most of that.

[Murphy Siding]

     OK, I see what you're saying.  I don't think there will problems with supply, per say.  It's the prices and/or subsidization of the prices that I see causing some excitement.

Now that you mention it, I guess I could have been more clear.

No,I don't forsee famine as a result.

I'm just thinking that our infatuation with driving is about to start making eating more expensive.

I guess the heavy drivers can always settle for range fed beef?

Actually, our infatuation with driving is making everything more expensive already.

[SALfan]

So I don't think we're messing too much with the food supply at this point.  It is interesting the way America's addiction to oil is on a collision course with the farm price/subsidy structure in our economy.

Well, I'll bet the cattle farmers waste no time passing this added cost along to the consumer.

SO, I suspect there may be some relationship, very soon.

There's no way for cattle farmers to pass along the added cost (more on that in a minute).  When you sell cows you take what the buyers offer, unless you have some kind of deal with a restaurant or butcher to sell direct to them, and I imagine those deals are keyed to cattle futures prices.  Another alternative is to be an integrated producer who sells to grocery stores or direct to the public, but those are very, very rare (at least to my knowledge).  Farmers just don't have enough control of the market to pass along increased prices; their only option when a crop becomes unprofitable is to quit that crop and produce something else. 

Trust me, if corn prices get high enough this country will be awash in corn the next harvest season.  There is enough farmland that is unused or used to grow something else that isn't very profitable, that if corn suddenly becomes profitable a lot more of it will be planted.  Where I grew up people are planting good farmland to pine trees because the trees don't require the inputs (labor, equipment, fuel, etc.) that crops do - it's just a way to lose less every year.

[nanaimo73]

Murph-

Will yesterday's election make any difference to the DME bid, either through the Federal or State politicians elected in South Dakota ? 

[Murphy Siding]

So I don't think we're messing too much with the food supply at this point.  It is interesting the way America's addiction to oil is on a collision course with the farm price/subsidy structure in our economy.

Well, I'll bet the cattle farmers waste no time passing this added cost along to the consumer.

SO, I suspect there may be some relationship, very soon.

There's no way for cattle farmers to pass along the added cost (more on that in a minute).  When you sell cows you take what the buyers offer, unless you have some kind of deal with a restaurant or butcher to sell direct to them, and I imagine those deals are keyed to cattle futures prices.  Another alternative is to be an integrated producer who sells to grocery stores or direct to the public, but those are very, very rare (at least to my knowledge).  Farmers just don't have enough control of the market to pass along increased prices; their only option when a crop becomes unprofitable is to quit that crop and produce something else. 

Trust me, if corn prices get high enough this country will be awash in corn the next harvest season.  There is enough farmland that is unused or used to grow something else that isn't very profitable, that if corn suddenly becomes profitable a lot more of it will be planted.  Where I grew up people are planting good farmland to pine trees because the trees don't require the inputs (labor, equipment, fuel, etc.) that crops do - it's just a way to lose less every year.

     JOdom: You're right .  I phrased that incorrectly.  Of course, the price a farmer gets for his product is dependant on the market selling price, not on his cost.  My mistake.  I do, in the long run, see the price of farm products rising, as the cost to do business increases.

[Murphy Siding]

Murph-

Will yesterday's election make any difference to the DME bid, either through the Federal or State politicians elected in South Dakota ? 

Politics()  Can you believe, that some of our radio stations are actually playing music today, over the airwaves??

    My own personal belief, is that it won't change anything too much, as I've come to believe that not much changes, no matter who gets elected to what.  We elect people who promise things that both they, and we know they can't deliver.  Then we complain that nothing gets done.  We have the politiccal system we deserve.  ( That's about as political as I want to get on a train forum)

 

     I haven't heard how Brookings, S.D. came out on their election to over-rule the agreement between DM&E and the City of Brookings.

[Anonymous]

Actually, our infatuation with driving is making everything more expensive already.

Ohh god, sounds like a commercial for commuter rail in the making.

[mheilmann]

Brookings said no. http://www.keloland.com/NewsDetail6162.cfm?ID=0,52276

[Murphy Siding]

Brookings said no. http://www.keloland.com/NewsDetail6162.cfm?ID=0,52276

     Thanks.  I tried finding something at lunchtime, with no luck.

[solzrules]

Murph-

Will yesterday's election make any difference to the DME bid, either through the Federal or State politicians elected in South Dakota ? 

Politics()  Can you believe, that some of our radio stations are actually playing music today, over the airwaves??

    My own personal belief, is that it won't change anything too much, as I've come to believe that not much changes, no matter who gets elected to what.  We elect people who promise things that both they, and we know they can't deliver.  Then we complain that nothing gets done.  We have the politiccal system we deserve.  ( That's about as political as I want to get on a train forum)

 

     I haven't heard how Brookings, S.D. came out on their election to over-rule the agreement between DM&E and the City of Brookings.

Don't be too sure, there, Murph.  The new congress will have a different set of people with different priorities.  If the wrong people side up with the Mayo, there will be enough political clout to bring the whole thing to a halt.  Another ten years of studies and legal filings could do it.  This whole project was basically a pet of John Thune, and there is nothing saying that someone else couldn't make it their pet project to kill it. 

The sad part is that if it is killed many states will miss out on an enormous amount of economic opportunity. 

[Anonymous]

Guys!  Remember? Livestock prices are made in very active markets.  You know-supply and demand stuff.  There are no "feed surcharges" added to livestock prices and the passing it along comment would have them falling on the floor. 

 

I'm going to have to start sticking to my guns more tenaciously.

 

I was offering that I believed that higher grain(corn) prices would result in more costly meat for the table, and lo and behold, http://money.cnn.com/popups/2006/pf/costsupdown/2.html

 

I guess if those very active markets are all forced to bid on the same availabilities, and those availabilities are all affected by the surge in grain prices,  then Homer is back in the position of having to decide if that last fin in his pocket goes for a burger for his gut, or a splash of fuel for his ride.

 

Decisions decisions!!  time to sweep that floor.

 

 

[jeaton]

Guys!  Remember? Livestock prices are made in very active markets.  You know-supply and demand stuff.  There are no "feed surcharges" added to livestock prices and the passing it along comment would have them falling on the floor. 

 

I'm going to have to start sticking to my guns more tenaciously.

 

I was offering that I believed that higher grain(corn) prices would result in more costly meat for the table, and lo and behold, http://money.cnn.com/popups/2006/pf/costsupdown/2.html

 

I guess if those very active markets are all forced to bid on the same availabilities, and those availabilities are all affected by the surge in grain prices,  then Homer is back in the position of having to decide if that last fin in his pocket goes for a burger for his gut, or a splash of fuel for his ride.

 

Decisions decisions!!  time to sweep that floor.

 

 

I was speaking of "feed surcharges" as the funny bit.  

As the food buyer in our house, I have no doubt that increased grain costs effect the cost of beef and other meats.   It is just a matter of the cost working its way into the market price of the cattle.  Sometimes a rise in grain cost will actually cause a short term decline meat prices as the feed lot operators may send a greater than usual number of cattle to markets rather than pay the higher price for feed.  That bulge in the supply will work off rather fast, and results in a subsequent lower supply and a corresponding increase in price.

And yes, sometimes it's pasta instead of meatloaf.