Prairie grain farmers new biomass sheiks - how about savannah sheiks?

In the following article, a Canadian farmer rightly calls himself and his collegues "biomass sheiks": rising oil & gas prices boost biofuels and biogas, which in turn put pressure on grain and biomass prices, making agriculture suddenly look like a much more profitable sector than it used to be.
But if Canada's prairie-farmers are biomass sheiks, then certainly the African village chief who controls huge savannahs and tropical grasslands belongs to the same green 'royal family'.

It's refreshing, but also a bit disconcerting, to hear some of the glowing predictions for primary agriculture in the years ahead. Optimistic predictions in the past have seldom come to fruition.

Why should this time be different? There's no denying that a huge structural change is underway, as ethanol and biodiesel are embraced as partial replacements for petroleum products. It's hoped this burgeoning demand will result in tighter world stocks and, therefore, higher grain prices.



There have often been analysts predicting that the growing demand for food was going to do the same thing. As recently as the mid-1990s, when grain prices were briefl y buoyant, many analysts were questioning who would feed the growing demand in China.

Ending the grain transportation subsidy was supposed to spur more livestock production and secondary processing within Western Canada. It has, and much more of our production is now used domestically, but grain price levels are still largely unsustainable.

In most of the past 10 years, grain prices have been so low that many producers have had to draw on their equity just to stay in business. Growing a wider array of crops and producing for specialized markets have helped, but have been no panacea.

Stocks-to-use ratios for grain are often hitting the rock-bottom levels that caused dramatic price rallies back in the 1970s, but the world never seems to run short and the value of grain has fallen out of sync with the inputs needed to produce it.

It's a little hard to believe the world is on the precipice of a new era, but that's exactly the message from analysts such as Ron Witherspoon.

Based in Regina, Witherspoon is with Interactive Management Group. He has more than 30 of years experience providing consulting services to both international corporations and Prairie farmers. He spoke June 12 to the Saskatchewan Stock Growers Association's annual con n in Estevan.

At a time when more grain farmers than ever are questioning why they're in agriculture, Witherspoon is saying that owning farmland in Saskatchewan is a good thing. He says the future looks bright.

"We are the biomass sheiks," says Witherspoon, referring to our huge land base and production.

He believes high oil prices are here to stay and that increasing production of ethanol will force increases in grain prices.

Witherspoon says there have been no new petroleum refi neries in the U.S.

in the past 30 years and many of the existing ones are in the path of hurricanes; plus, maintaining a steady supply of Arab oil is tenuous at best.

Meanwhile, American ethanol production is booming, consuming billions of bushels of corn each year. Consumption is going to increase by many more billions in the years ahead. Some U.S.

senators are already lobbying for a 25 per cent blend in gasoline.

By comparison, Canada is talking about a renewable fuel standard of fi ve per cent by 2010. Even though Canada is going a lot slower, we'll benefi t from the changes in the American grain market.

Witherspoon claims that nearly a million American farmers have investments in ethanol facilities.

Right now, the profi t margins are huge.

Many progressive farmers on this side of the border have been burned with investments in value-added ventures and livestock enterprises.

While those kinds of enterprises make sense on the landlocked Prairies, margins are tight. Management errors and undercapitalization have exacted a toll.

Another exciting development is biogas. Livestock can be fed the byproducts from ethanol production.

In turn, the manure can be used to generate methane that can be burned for heat and for the production of electricity. This isn't science fi ction.

There are a growing number of working examples across the country, most of which are modeled after designs being used in Europe.

No one can predict with certainty how the future will unfold, but agriculture as an energy source seems destined to drive the kind of structural change that we haven't seen in decades.

Canada.com.