Jim Wiesemeyer, senior VP Farm and Trade Policy with Informa Economics, said mega changes are underway in energy that will dramatically impact the business of agriculture, including more output, greater fuel efficiency and alternative energy. Wiesemeyer spoke to farmers at the recent Wyffels Hybrids Corn Stratgies conference in Oxford Junction, Iowa, USA.

“Not many people are saying this right now; I could be wrong. But I believe you’re going to have $65 to $75 a barrel, and we are a little over $100 for brent crude right now,” he said. "Regular gas is going to go down to $3/gallon and that’s like an income tax cut.”

Domestic oil use is down 11 per cent from its peak in 2005, and output has gone up 30 per cent since 2008. The impact of this is equal to 4 million barrels of new oil supplies a day. From a corn perspective that's about a two billion bushel carryover.

“Now I won’t say that we’re going to become energy independent. We’ll still export,” he said. “Foreign demand for oil is easing, so not only do you have domestic US and world production going up, but US and world consumption is going down, including China.”

Around the world, fuel subsidies are shrinking and environmental regulations are rising. In Europe and Japan, there are weak auto sales, rising urbanization and weak economies.

World Energy Output

With over 170 billion barrels, the oil sands reserves in Canada are on the rise. Africa and South America have discovered tremendous offshore deposits that will provide trillions of dollars in revenue in the decades ahead. In Iraq and Russia, oil production is booming again.

“This translates to big impacts on other sectors,” he said. “Biofuels will become less competitive, as gas and diesel become cheaper relative to ethanol and biodiesel. Natural gas usage is going to surge and go to the lowest price. Abundant supplies will displace or temper oil use across many industries.”

US and China truck fleets are expected to use more liquid natural gas and less diesel. In the Middle East, Saudi Arabia is discovering and producing more gas wells so they can free up more for export. Plastic makers are going to switch from oil to gas as chemical feedstock.

“Farm equipment - I know there are naysayers out there, but its coming. I was at a meeting last year in Austin, Texas, and a cotton producer, yelled out to a John Deere corporate planner, “When are we going to see more natural gas in equipment?” They’re on the drawing boards and once they get that power figured out, you watch this mega trend for the decades ahead for farm equipment, it’s important,” he said.

"Egypt, Syria, Iran, Israel, Iraq, China and Japan - even though the fundamentals are trickling in -more production, less demand, lower prices, a geo-political problem can make any forecaster look stupid,” Wiesemeyer said.

Renewable Fuel Standard

Regarding the renewable fuel volume requirement, Wiesemeyer doesn’t see any short term change in the ethanol mandate for 2013 but expects a change in 2014.

“Just do the math because we’re in the blend wall at 10%. We have E15, but the marketplace is not accepting this to the degree that it’s needed. It takes about a decade to get acceptance for a new product.” he said. “E15 is going to take a while. When you look at where the mandate is going to be in 2014, ‘15 and ‘16, we can't do it even with the RINs (Renewable Identification Number). I don’t know how they’re going to do it, but we’ll know later on this summer."

In 2007, when the farm ethanol mandate was doubled, the projection from the Energy Information Agency forecast (green line) what gasoline consumption would be in the United States.

“They did not know that the great recession was going to come, thereby limiting the need for those trips, and they did not realize the impact of the tremendous increase in corporate average fuel economy that American cars would be forced to go under,” he said. "The blue line is where gasoline demand is now."

From a policy perspective, Wiesemeyer said they made a strategic mistake making the mandates too rigid and static when they should have made them an annual mandate based on the next year’s forecast of gasoline usage.

“I tell the hog, cattle, turkey and dairy groups that they lost the big one - that they’re complaining about ethanol now when they didn’t do their homework in ‘05 and ‘07. Their groups let them down,” he said. “There was not one economic analysis of the impact of the ethanol mandate in 2005 and 2007. You have the unintended consequences. Now what some of the groups want to repeal the RFS which would be stupid. The ethanol mandate is a strategic policy. It makes sense, and it was the biggest fundamental change in farm policy in my career that made corn king.”

Trade Policy

Wiesemeyer suggested farmers watch those countries’ economy in the years ahead along with US trade policy.

“If it’s positive, it will increase trade flow, and if it’s negative, it will temper trade flow,” he said. “We’re going to have a new undersecretary of trade - rarely do I say I want to add another person to the government – but in the aspect of trade, I think we need one because the last time we had a reorganization of trade was 1978. US exports totaled $29 billion and now they are $135 billion to $140 billion. Sixty per cent of exports in 1978 were bulk and now they’re value added primarily. Most of our issues in the past were tariff issues and market access, but now they’re non-tariff trade barriers.”

China and Russia using ractopamine and other issues to stop US products is a current example.

“It took a nanosecond for Japan, South Korean and Taiwan to stop imports of white wheat because one little plant in one little field in Oregon was found to have a GM unapproved wheat variety,” he said. “That’s why you need an effective trade policy.”