Siphoning Off Corn to Fuel Our Cars

[RedEarth]

Siphoning Off Corn to Fuel Our Cars
As farmers feed ethanol plants, a costly link is forged between food and oil.

By Steven Mufson
Washington Post Staff Writer
Wednesday, April 30, 2008; A01



CHARLES CITY, Iowa


Erwin Johnson picks up a clump of the dark, rich soil that he has farmed for 35 years, like his father and grandfather before him. In a few months, this flat expanse of northern Iowa will be crowded with corn ready to be trucked to market.

A year ago, that market got a little closer -- and a lot better. Instead of sending his corn to a barge company to be shipped down the Mississippi River for export, Johnson now loads it into an open truck and sends it two miles up the gravel road to a hulking new ethanol distillery that he can see from his field. The plant is paying him $5.50 or more a bushel, more than twice as much as Johnson could get just a couple of years ago.


Across the country, ethanol plants are swallowing more and more of the nation's corn crop. This year, about a quarter of U.S. corn will go to feeding ethanol plants instead of poultry or livestock. That has helped farmers like Johnson, but it has boosted demand -- and prices -- for corn at the same time global grain demand is growing.

And it has linked food and fuel prices just as oil is rising to new records, pulling up the price of anything that can be poured into a gasoline tank. "The price of grain is now directly tied to the price of oil," says Lester Brown, president of Earth Policy Institute, a Washington research group. "We used to have a grain economy and a fuel economy. But now they're beginning to fuse."

http://www.washingtonpost.com/wp-dyn/content/article/2008/04/29/AR2008042903092_pf.html

[izzie]

1. I am so far behind all this. I thought with the '70's problem some

one had done some thing. Better miles to the gal. smaller cars, lower speed and all that and not one Corp. in this country seemed to get it as the rest of the world move ahead. We had people run to bring the bigger cars back and up the speed, the whole mess. A lack of leadership that we are all paying for. I have bought a sm. car since the gas lines of yesterday but I am only one person and it hardly helps. When they slowed up the Ak. pipe line because the Oil Co. did not feel they were making enough profits you could see what was coming. It is our own fault for putting in those old time thinkers and old ways of doing things. Free for all capitalism does not work in a society as detailed and big as ours. It takes more than just getting into office. It will take us years to get the 'free-from-any-laws' type guys out of all our govt. dept. that Bush has put in and Clinton was not much better at it either. Just look at NAFTA and what is the other one? CAFTA? Some one should have been watching out for the people of this country and we like fools voting these people in.

[DU9598]

2. Why is rice being rationed and its prices so high?

It is due to oil and increasing populations, not due to biofuels. Interesting that corn prices mirror oil prices.

[Igel]

4. It's due to a bunch of things.

Some areas had reduced yields, even though Thailand, I believe, is about to have a rare 3rd crop in one year.

Increased population. More mouths, more food needed.

A given population is more wealthy and so has a higher calorie intake. Healthier people and excess weight both = calories.

Biofuels. They both take land out of producing some foods as well as push up corn prices. The former means less of some foods (soybeans, wheat) are grown; the latter means that there's less corn on the open market. You can't afford corn, wheat, or soybeans, you're left with rice, potatoes, or a few lesser common staples. At some level, staples are fungible: If I have to pay $1 for a pound of corn, but $0.20 for a pound of rice or $0.10 for a pound of potatoes, why stick with corn? But you can bet suddenly there'll be more demand for the other staples, and their prices will rise.

Traders: You take money out of land- and mortgage-based investments, you need to put it somewhere. Voila: Bidding wars and an instant bubble.

Oil prices. 1. Transportation and production costs increase.

Oil prices. 2. Oil prices increase; more people move to natural gas' natural gas prices increase; fertilizer requires natural gas, so fertilizer prices increase.

Market limitations. 1. You have export bans and restrictions, it makes for a smaller amount of rice traded on the international market. When more money (see two paragraphs up) moves into the commodities market, the market's smaller than it would be otherwise.

Market limitations. 2. When market prices go up, countries slap more export restrictions on their crops, making sure that the international market is even smaller than it would have been.

Agricultural, domestic and international policies that reduced food production in some countries. I was listening to a report on Mauritania yesterday. In the last 15 years the country's severely cut food production (the report was that they had grandiose plans to sharply increase production this year). The reduction was due to one cause: They could get food more cheaply than they could produce it, when including opportunity costs. This was because Mauritanian food production was inefficient (on marginal lands, low-tech methods), required scarce resources (water, fertlizer), and so was more expensive; while in other countries food production was more efficient, cheaper, and subsidized. Another report, from months ago, pointed out that IMF policies wanted free-market solutions, which made it harder for small farmers to stay in business; Rwanda (Zambia?) went back to subsidized fertilizer and had a big boost in food production by small farmers. The IMF policy surely reduced potential output over the last decade or so.

Timing. There are harvests due in a few weeks. Given high demand and speculation, the influx of new supplies would be good; this means having just the remains of the previous harvest to work with is bad.


So it's not reducible to a simple "Look! The bogeyman!" solution. Biofuels are the poor countries' scapegoat, because it allows them to just blame the US and Europe. Market limitations are the Chicago-School scapegoat, with IMF interference and commodity bubbles being a bad side effect. Oil prices and population are the simple progressives' scapegoat, with IMF and commodity-bubble factors or even global-warming induced crop failures being a more sophisticated variant. Few mention increased calorie intake or crop timing. While there's no silver bullet, there are a lot of lead ones: Helping any one problem would probably release enough pressure to cause commodities to drop in price, at least for the short term.

[ladjf]

3. Terrible idea.