Case-IH head urges lobbying for ethanol

BISMARCK, N.D. -- Get out and tell your congressman how important ethanol is -- and by the way, don't wait until 2009 because it might be too late.

That's the message from Randy Baker, president and chief executive officer of Case-IH. Baker spoke to about 200 listeners at the North Dakota Implement Dealers Association annual meeting Nov. 18 in Bismarck, N.D.

"Get active in this ethanol support," Baker says. "You have to do it right now. If we wait until June of 2009, it may be too late and the industry will take a hard hit in terms of its ability to continue to grow."

Baker's company will produce 39,000 tractors and more than 6,000 combines in 2008. Baker, notes that conditions are far different than six months ago when he'd accepted an invitation to the event from Dave Meyer, chairman and chief executive officer of Titan Machinery Inc. of Fargo, N.D.

The 2009 and 2010 crop year economic outlooks are somewhat poorer than the peak in 2007 and early 2008. For the upcoming year, he sees lower fuel and farm crop protectant prices, higher seed prices. The cost of money will be more expensive.

Cautious but optimistic

A cautious but optimistic approach to the future was the watchword of the convention.

Mike Weisenberger, store manager for the Titan Machinery dealership in Grand Forks, N.D., and outgoing chairman for the NDIDA, says dealers have come off "one of the better years in three decades." He says farmers are nervous about completing the 2008 harvest and about input costs for 2009, but there is reason for optimism.

"Our customers are in the best financial condition they've been in many years," he says. "Still, they're concerned with what's going on in the world and hoping it won' affect them too much."

Dealers have seen a 40 percent increase in interest rates from manufacturer credit sources -- moving many customers from "single digits to double digits" in annual interest deals "overnight." Some dealers are working with third-party financing for producers who need it.

Baker offers a world view of the ag picture. U.S. farmers continue to be profitable, compared with farmers in key competitors, such as Argentina and Brazil.

He notes debt-to-equity ratios for farmers are far better today than they were in the late 1970s and early 1980s, when farmers got into a credit crisis.

"Today, we're at an all-time health level" unless there is a "major shift in land values that degrades equity in their farms."

Farmers in much of the Corn Belt have had difficulty harvesting their crops, but he thinks enthusiasm for purchasing equipment will revive through 2009.

"We'll see a good push of purchases, particularly to take advantage of theremaining accelerated depreciation. There's no doubt in my mind that'll go away next year."

Large, four-wheel-drive tractor sales should remain stable into 2009. Capacity in Fargo's plant will be stable. The overall 100-horsepower tractor market will be "flat."

The combine industry will drop from some 11,000 new units in 2008 and will settle in the 8,000- to 9,000-unit-per-year range, over the next two years. Market saturation will be a factor.

The ethanol factor

"It's a tough job when no one is defending an industry that's totally changed farming in North America," Baker says. "If you're speaking with your local representatives, you have to push on this issue."

He says ethanol from corn and biomass will be an important alternative source of fuel.

The overall fundamentals still look good.

The U.S. is in the best stocks-to-use ratio than any time in history. The ethanol industry is profitable, but the price of ethanol is $1.20 to $1.60 per gallon -- still a bargain, compared with gasoline.

Ethanol has leveled out at about 30 percent of all corn going into ethanol.

"That is why our stocks-to-use ratio is in such good shape," he says.

But the U.S. energy policy, which calls for more renewable fuel, is in "direct conflict" with Environmental Protection Agency approvals for up to 10 percent ethanol in unleaded gasoline.

Baker says that once the nation hits that 10 percent level, it'll be "maxed out" and ethanol development will have to be cut, exported or shut down.

He says the industry must increase that level to 15 percent blends. "That has to happen quick, because we'll hit that cap in June of next year," he says.

He says the healthiest corn prices for ethanol profitability would be in the $3.50- to $4-per-bushel range. The cost of production ranges from $2.75 to $3.75 per bushel.

The ethanol struggle will be a tough one.

"How many of you have seen a positive, pro-ethanol ad either in a newspaper, or a non-ag publication? Probably none," he says. "Do you know how much the oil industry spent last year, trying to kill your industry? $100 million," he says.

Case-IH is in the process of forming a new industry-related lobbying organization to offset that.

He says one key is to get pork and poultry producers "certified" for using distiller's grains, which would help make ethanol more palatable to beef producers who area concerned about high corn prices.

There will be an inevitable slowdown after years that have been some of the best in history.

He says he's urging is own dealer core to "fix every operational issue" they have -- training and recruiting, as well as systems tools.

"You've got to do it is when you have an 'up' market," he says.

He also strongly urges dealers to manage their used equipment fleet "tighter than you ever have before."

"When it starts slowing down, that's where it starts first. Your 'used' is going to start stacking up," he says.