No analysis of the corn market, alternative sources of
supply, of the
general worldwide depression of agriculture that has existed since
the horse was abandoned for the motor vehicle. No mention that doubling
of the price of corn would only result in a few cent price rise of a loaf
of
bread. (most of the costs are due to production and distribution).
No analysis, like in your letter? Don't go blaming the mainstream press for
problems you're only compounding.
So let me set the record straight, instead of writing an article on the wiki
today. I'm going to do this, because my day job is at a company that invests
in alternative energy markets, and that puts me in a position to have quick
and easy access to information that may not be easy for the average reader
to get their hands on. For instance, the BBG terminal has corn prices going
back into the distant past.
Ethanol from corn is nothing more than an expensive form of crop subsidy.
Period. It certainly doesn't help the energy situation, carbon balance or
most any measure of the enviornment. Sugar cane is one thing, corn-based
processes are a joke.
How much of a joke? Well practically _everyone_ except the current
administration and the US car companies basically dismiss it completely. If
this had anything to do with ethanol, you could just buy it from the
Brazilians. But, in fact, the US maintains high import tarrifs on ethanol to
prevent this from happening. Why? It's due entirely to lobbying efforts on
the part of the car companies and farm subsidy groups. Car companies? Yes,
they are well aware that widespread US production is years away, giving them
lots of time to do what they have always done in the past -- wait and hope
it all blows over. If this had anything to do with the enviornment,
switching to diesel would be the trivial solution, but the Europeans and
Japanese are far more capable of making this switch. For that reason more
than any other, diesel continues to be pooh-poohed by Detroit -- there's
been no technical problem for about a decade now (low-sulphur fuel, new
engine designs and hybridizing has eliminated any possible compaint).
Now given all of this, you might think that the farmers would be wildly
supportive of ethanol. Well that is semi-true for the corn farmers (but not
all of them by any means), but practically every other farmer around the
world hates it. And when I say around the world, that includes the US, where
everyone from the farmers to the USDA is extremely worried about secondary
market effects. Of particular worry is feedstock prices, which could be
switched to other grains, but only for an economic loss. The reason we feed
corn was because it was cheaper than everything else, and since the prices
of "everything else" aren't falling, there's no way out. Most worrying,
to
quote the USDA, is the distinct possibility of "feed grain prices rising
above farm program support levels". Read the report yourself:
http://www.ers.usda.gov/Publications/FDS/2007/03Mar/FDS07C01/fds07C01.pdf
Further, the price increases in corn have only just started. Until 2005 the
price of corn had steadily decreased compared to the CPI, remaining stead
around $2 to $2.5/bu unadjusted with periodic weather related spikes to
around $3.50. A historical overview can be found here:
http://www.ontariocorn.org/market/basis.html
Currently the price is at it's lowest point in about a year, at $3.71/bu.
This is historically unprecedented. Yet this is the _lowest_ price, which
peaked over $4.30/bu and is expected by every commodities trader to return
to those levels by the end of the season, with $5/bu being widely talked
about.
http://economictimes.indiatimes.com/Markets/Commodities/Market_pros_have_a_…
This IS having shakeout effects on other commodities as farmers attempt to
cash in by converting land to corn production, for instance, cotton
production is ramping downward.
http://www.signonsandiego.com/news/nation/20070409-0021-farmscene-cottonsea…
Now, as you say, the price of the grain doesn't necessarily imply higher
food costs. Well that's great in theory, but the only true measure of food
costs is _actual_ food costs. And what's _actually_ happening? Worst case
scenario: food costs are up across the board and are only outpaced by energy
costs in terms of inflationary pressure.
http://www.theglobeandmail.com/servlet/story/RTGAM.20070410.wxfood0411/BNSt…
Having the govornment dump huge amounts of money into a single point of the
economy is a repeated road to ruin. Doing so for what are highly politicized
reasons only makes it worse. Its no different this time. If you think
"weapons of mass destruction" was a bad idea, this one is likely far far
worse for you.
Maury
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