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Is There A Looming Biofuels Bust?
by Rod Johnson

Headlines are intended to catch your attention. To grab you by the seat of your pants and say “Read Me.” Well, I hope I caught your attention, because the biofuels boom is the biggest story to hit the industry of agriculture in ten years.

“Only ten years,” you might respond.

Yes that is correct, the biggest story in ten years. You see, ten years ago another story was unfolding of a similar magnitude. Phrases like “this changes everything” were being tossed around like candy at a 4th of July parade. Different flavors. Different colors. Yet all were filled with sugar pleasing to the taste buds of the believers, “The Internet Will Change Everything.”

Today, the rampant growth of the biofuels industry is remarkable, and for the moment, it is truly changing everything. Crop rotations are being altered. Corn and soybeans for the first time in history are competing in the same arena with a barrel of oil. Livestock production is moving away from being a value-added grain proposition, to an integral biofuels byproduct consumption partner. The number and magnitude of these changes is mind-boggling.
However as an armchair strategist, I have to wonder whether this beast we refer to as “biofuels” has legs, or if it will resemble a similar fate to that of the dot-com era. You see, I went through that era of hyper growth, hyper money and hyper projections. One literally could not pick up a business publication without being exposed to a headline that said, in essence, “The Internet Changes Everything.” Multinationals were making investments just to make sure they covered their perceived exposure. And at the end of the day, anyone with stock in these companies was going to retire – millionaires.

Well I can tell you, my million never arrived. Despite my failure to make my fortune, the dot-com era is alive and well, despite a huge failure rate. Names like Google and Yahoo and Amazon are but a few that have emerged and leading the pack. In fact, the technology era has and continues to mint more millionaires than ever.

However, I wonder how the long-term impact of the biofuels industry will unfold. Will it be a huge success, a huge failure, or a combination of winners and losers? The answer to this question will weigh heavily upon the future of agriculture – period. If it’s a huge success, all of the chess pieces now in play will continue to move along a projected and at times, somewhat chaotic voyage. A lot of people will become rich – especially those that invested early. If it’s a huge failure, most of agriculture will be thrown a huge curveball, and billions of dollars of investment capital will be lost. And the headlines will suddenly read, “I told you so.” If it’s a combination of the above – well, there will be winners and losers.

I don’t claim to be a futurist, although I do like to think and play in that sandbox from time-to-time. However, I can project this much. The move from a food focused; to a fuel focused agriculture economy is troublesome. It literally changes everything. And the longer we go down this path, the more difficult it will be to turn back. In fact at some point – it almost becomes impossible.

In the not too distant future, it’s reasonable to project that the price of a bushel of corn will be directly tied to a barrel of oil. No longer will we wait anxiously for the next USDA planting projection report – simply because they will become irrelevant. Instead, corn merely becomes a hedge against the price of oil, a place where what happens in the Middle East is more important than whether it rains or not in the Midwest. At least one thing will remain constant – both are equally unpredictable.

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