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After a torrid 2007, corn prices have risen an additional 20% this year because of global demand for livestock feed, sweeteners and ethanol. The rush by American farmers to forgo other grains to plant cash-producing corn, along with weather problems, has squeezed wheat supplies, pushing the price of that grain up 21%. Soy has risen 25% this year.
no one could have guessed this? It's becoming a worldwide problem.
The result will be:
1) more grain produced and/or
2) more energy produced.
The result will be lower prices eventually.
The thing with food, vs oil and metal, is that food rots. You have to sell it. And, the production chain takes a while to start up and shut down, too.
Also, grain going to energy is causing a large price increase because people have got to have food. But, once they get x amount of food, they don't need or want anymore. (Gold and oil isn't like that.)
Therefore, you'll get these swings in prices and supply, even with government programs that keep farmers farming when the prices are low and no one wants more food. (Starving people is not a result of lack of food, it's the lack of stable politics or wrong personal priorities.)
The only way to get prices down is to get production up, and the only way to get production up is to raise prices. The governments attempt to keep the risk low with insurance, disaster payments and crop subsidies , which is a benefit to evening out production.
There are many problems with government subsidies, however, as this story in today's NYT outlines:
[nytimes.com...]
> It's becoming a worldwide problem.
Becoming? Food shortages are nothing new. We've had famines throughout history.
The only difference here, is that the massive pr and marketing machines of the oil conglomerates have put Ethanol squarely in their sights.
What to look for:
- stories left and right about big suvs using more energy running on E85 ethanol. Yet, quality stories about midsized and smaller cars getting BETTER gas mileage on 30% ethanol are not to be found.
- stories about food shortages. Yet, there are no stories talking about how much land has been brought BACK into production after laying fallow for as much as 20 years due to govt set aside programs.
- stories about how ethanol costs more energy to produce than the gas it produces. This fantasy has been spread time and time again. Last time I looked, the laws of business have not been suspended. Farmers could not produce corn for ethanol if it were not economically feasible. No simple tax break for building an ethanol plant (the only govt support of ethanol), can possibly make up for billions of bushels of corn. Yes, there is a conversion of energy, but net energy out is greater than net energy in. It's like burning coal to make electricity.
- stories about how ethanol demand is outstripping our supply. Yet there are very few stories about corn on the genetic drawing board that many scientists believe will more than double yields within ten years (not to mention all the fallow land that is being brought back into production - nor land that is being converted from nonfood crops like cotton and tobacco.
- stories about ethanol plants getting tax breaks - under the guise of "government subsidies". They feel that the plants should pay the taxes and thus, that is "lost revenue" for the govt. The only problem with that accusation is that the plants would never have been built if not for the startup tax break. Ethanol has put billions into the tax rolls via employment, reduced need for farm support programs, and capital expenses.
Lastly, most of the negative (I feel planted) stories will be found in the largest city papers where oil companies will find lots of friendly ears. The New York Times and the LA times have been on a constant drum beat against ethanol for the last ten years. Prior to that, they have hammered on farming and farm policy for the last 4-5 decades.
> There are many problems with government subsidies
There is a classic slanted story. The only reason those guidelines exist is to prevent fraud in farm subsidy programs. Some knuckleheads that were in the farm programs would plant veggies in the set aside acres. That would qualify as "ground cover" and meet requirements. They would go pick those veggies in the fall. So, they introduced "Base" acres to keep participating corporations for double cropping and still qualifying for govt funds.
Seriously, never trust a article in the times about farming, energy, or ethanol.
Brett,
politics was not my intention, but granted it can be a political story. In my opinion is more of an unintended consequences /laws of economics in action one. Yes, it is becoming a problem because it is happening in 1-2 year period and prices have skyrocketed
[news.google.com...] , not only is US but other countries as well
[news.google.com...] Also this time it isn't drought or pests, but something else. In part oil prices do drive the cost up (trucks, energy to make the product) but ethanol is getting the blame. Whether it is temporary or not, we will find out soon but it is happening.
btw: I don't have a dog in this fight--other than food prices that is, just like everyone else ;)
Still, there is some logic in that higher food prices do impact the poor. Still, again, the way to get more food produced is to raise prices. Works every time.
The reporting in the NYT on farm policy and food production is pretty good, but the opinions and editorial pages are in left field at times. I've been a big fan of the WSJ reporting on farm policy, which has taken a tough, logical stand on how money is being wasted on cotton subsidy payments and how it is hurting undeveloped nations. It bad for US taxpayers, consumers and poor farmers.
Brazil has a lot of fun with the US at the WTO. The US has promoted free trade for years, but Brazil makes it clear that it's mostly been talk. When it comes to trade, every nation looks after the money guys. And the consumers get the shaft.
When talking about food and policy, keep in mind that you'll get rioting in the streets in Ohio if there is a food shortage. High price, that is one thing. A shortage, that's another. No one even wants to look like they might get close to it, so there is a lot of waste and goofy rules.
The government is doing much more than just providing tax breaks, they are actually mandating demand by requiring more biofuel to be mixed with gasoline.
With government assistance, ethanol has a promising future but to imply that anybody pointing out the negatives of it is a plant for “oil conglomerates” is dishonest at best.
To the original subject…
The sky rocketing price of corn is not only impacting food supplies but ethanol itself. The economics of corn based ethanol depend on high oil prices in combination with low corn prices. While we still have the high oil prices, corn has more than doubled in price in the past few years due primarily to the increased demand from those plants. That’s the primary reason behind the recent announcements that companies are putting a halt to the construction of new plants.
Are there Ferengi among us?
Luckily there are better solutions coming along.
there is also the law of conservation of energy. You cant get out more energy than you put in :) ethanol still produces CO2 and greenhouse gases so that doesnt improve global warming.
Although the cost of wheat is up-running about $8.50 a bushel at press time-the wheat is a minor part of the cost of a loaf of bread.According to National Agricultural Statistics Service (NASS), when wheat was $5.25 per bushel, there was about 10 cents worth of wheat in 20-ounce loaf of bread. With wheat at $8.50 a bushel the cost of wheat in a loaf of bread is about 18 cents. So, why then is the average cost of a loaf of bread around $3? Much of it appears to be the cost of energy.
According to the NASS, the cost of a loaf of bread involves more than just the ingredients-the cost of fuel to transport the ingredients to the bakery and the finished product to wholesale and retail outlets, the energy to heat the ovens, the packaging, the equipment and the labor required at every stage of the production, delivery, marketing and sales process.
It makes up even a smaller part of the cost in dog and cat food. (This is a business which you wish you were in. Great margins in pet food. Ask Wal-Mart.)
Still, in food relief and in poor nations, the price of grain can be a larger factor.
And, corn is mostly a livestock feed. The margins in the dairy, poultry, hog and cattle business are often problematic, so you'll see producers cut back on production as their cost of operation go up, which will result in higher prices at the grocery.
Bottom line, there will be an market basket inflation bump. But, not like at the gas pump.
Here is a nice article that reports about ethanol increasing miles per gallon in standard engines:
[thefraserdomain.typepad.com...]
Previous assumptions held that ethanol’s lower energy content should always directly correlate with lower fuel economy for drivers. Those assumptions were found to be wrong. Instead, the new research strongly suggests that there is an “optimal blend level” of ethanol and gasoline—most likely E20 or E30—at which cars will get better mileage than predicted based strictly on the fuel’s per-gallon Btu content.The new study, cosponsored by the U.S. Department of Energy and the American Coalition for Ethanol (ACE), also found that mid-range ethanol blends reduce harmful tailpipe emissions and that vehicles without any adjustments can operate well on higher ethanol blends than previously thought.
I have to admit that when the auctioneer mentioned ethanol before a cattle sale today in reference to the need for more feed efficient genetics I did snicker at the thought that he's a plant for the oil conglomerates.
