Drought, Energy Costs Affecting US Agriculture

Armando Duke

Houston, TX - US agricultural trade is expected to show higher priced crops and lower yields this year due in part to drought conditions extending through the nation's grain belt as well as higher costs for fuel and fertilizer, US Agriculture Secretary Mike Johanns says.

The USDA says that energy costs make up one of the highest single factors in farming in the US today, accounting for 15 percent of total cash expenses. For 2006, energy-related expenses are forecast to climb to nearly $30 billion, up 50 percent since 2003, the USDA reports.

According to the National Agricultural Statistics Service's report on crop production released this morning, Corn production is forecast at 11.0 billion bushels, down 1 percent from last year and 7 percent below 2004. Soybean production is forecast at 2.93 billion bushels, down 5 percent from 2005 and down 6 percent from 2004. All wheat production, at 1.80 billion bushels, is down slightly from the July forecast and down 14 percent from 2005. The most severe drop was reported in cotton, which is forecast at 20.4 million 480-pound bales, down 14 percent from last year's record high 23.9 million bales.

The USDA said the declines in crop production were due to drought conditions extending now into their second year.

The USDA report said that scarce precipitation and above normal temperatures depleted soil moisture levels in the Western Corn Belt and Great Plains. Crop conditions in the eastern Corn Belt and Ohio Valley were generally better than a year ago as moderate rainfall and near normal temperatures throughout much of the growing season helped maintain adequate soil moisture.

Chris Hurt, a Purdue agricultural economist, told reporters Friday that "Indiana farm incomes could be 40 percent to 60 percent lower than in 2005", blaming higher costs of fuel and fertilizer.

Hurt said that while there is 11 billion bushels of corn being produced this year, he predicts that 12 billion bushels will be consumed, which should push corn prices higher. speaking in Sioux Center, Iowa earlier this week, US Agriculture Secretary Mike Johanns said, "Our energy prices have tripled, our fertilizer costs have more than doubled, and that's just the tip of the iceberg."

Johanns has been pushing biofuel production as part of the Bush administration's effort to reduce the dependence on foreign oil, but outside of creating a new market for corn, its not helping farmers find ways to cut fertilizer costs, though one Reno-based enviro-ag business, Itronics, is showing promise in those markets it serves.

Itronics, Inc. (OTCBB: ITRO) manufactures fertilizer out of recycled photochemicals, which on Monday its chief executive spoke out about the liquid fertilizer market it serves saying, "the combined market for Itronics' services and products is approximately $1 billion with a gross margin of 35 percent." It was the first time Dr. Whitney has come forward with growth estimates and a bold move, considering Itronics only reported $1.1 million in gross sales in the first six-months of the year.

Whitney explained that after 15-years of research and development, having invested over $24 million to date, that his company is poised to start showing growth. Backing Whitney's belief were a group of east-coast investors who recently put up over $3 million to double the company's plant capacity to fulfill demand.