Buy Feed Corn: They’re about to stop making it… (grain-based biofuels alert)

‘Buy Feed Corn: They’re about to stop making it…’ F. William Engdahl July 26 2007

That bowl of Kellogg’s Cornflakes on the breakfast table, or the portion of pasta or corn tortillas, cheese or meat on the table is going to rise in price over the coming months as sure as the sun rises in the East. Welcome ladies and gentlemen to the new world food price shock, conveniently timed to accompany our current world oil price shock.

Curiously it’s ominously similar in many respects to the early 1970’s when prices for oil and food both exploded by several hundred percent in a matter of months. That mid-1970’s price explosion led President Nixon to ask his old pal, Arthur Burns, then Chairman of the Fed, to find a way to alter the CPI inflation data to take attention away from the rising prices. The result then was the now-commonplace publication of the absurd “core inflation” CPI numbers--sans oil and food. Stephen Roche was the young Fed economist who was assigned the statistical manipulation job by Burns.

The late American satirist, Mark Twain once quipped, “Buy land: They’ve stopped making it…” Today we can say almost the same about corn or all grains worldwide. The world is in the early months of the greatest sustained rise in grain prices, for all major grains including maize, wheat, rice that we have seen in three decades. Those three crops constitute almost 90% of all grains cultivated in the world.

What’s driving this extraordinary change? Here things get pretty interesting. The Bush Administration is making a major public relations push to convince the world it has turned into a “better steward of the environment.” The problem is that many have fallen for the hype.

The center of his program, announced in his January State of the Union Address is called ’20 in 10’, cutting US gasoline use 20% by 2010. The official reason is to “reduce dependency on imported oil,” as well as cutting unwanted “greenhouse gas” emissions. That isn’t the case, but it makes good PR. Repeat it often enough and maybe most people will believe it. Maybe they won’t realize their taxpayer subsidies to grow ethanol corn instead of feed corn are also driving the price of their daily bread through the roof.

The heart of the plan is a huge, taxpayer subsidized expansion of use of bio-ethanol for transport fuel. The President’s plan requires production of 35 billion gallons (about 133 billion liters) of ethanol a year by 2017. Congress already mandated with the Energy Policy Act of 2005 that corn ethanol for fuel must rise from 4 billion gallons in 2006 to 7.5 billion in 2012. To make certain it will happen, farmers and big agribusiness giants like ADM or David Rockefeller get generous taxpayer subsidies to grow corn for fuel instead of food. Currently ethanol producers get a subsidy in the US of 51 cents per gallon ethanol paid to the blender, usually an oil company that blends it with gasoline for sale.

As a result of the beautiful US Government subsidies to produce bio-ethanol fuels, and the new legislative mandate, the US refinery industry is investing big time in building new special ethanol distilleries, similar to oil refineries, except they produce ethanol fuel. The number currently under construction exceeds the total number of oil refineries built in the US over the past 25 years. When finished in the next 2-3 years the demand for corn and other grain to make ethanol for car fuel will double from present levels.

Not just USA bio-ethanol. In March Bush met with Brazil’s President to sign a bilateral “Ethanol Pact” to cooperate in R&D of “next generation” bio-fuel technologies like cellulosic ethanol from wood, and joint cooperation in “stimulating” expansion of bio-fuels use in developing countries, especially in Central America, and creating a “bio-fuels OPEC-like” cartel market with rules that allows formation of a Western Hemisphere ethanol market.

In short, the use of farmland worldwide for bio-ethanol and other bio-fuels—burning the food product rather than using it for human or animal food—is being treated in Washington, Brazil and other major centers, including the EU, as a major new growth industry.

Bio-fuel—gasoline or fuel produced from refining food products—is being hyped as a solution to the controversial Global Warming problem. Leaving aside the faked science and the political interests behind the sudden hype about dangers of global warming, bio-fuels offer no net positive benefits over oil even under best conditions. Its advocates claim that present first generation bio-fuels “save up to 60% of carbon emission.” As well, amid rising oil prices at $75 per barrel for Brent marker grades, governments such as Brazil’s are frantic to substitute homegrown bio-fuels for imported gasoline. In Brazil today 70% of all cars have “flexi-fuel” engines able to switch from conventional gasoline to 100% bio-fuel or any mix. Bio-fuel production has become one of Brazil’s major export industries as well.

The green claims for bio-fuel as a friendly and better fuel than gasoline are at best dubious, if not outright fraudulent. Depending on who runs the tests, ethanol has little if any effect on exhaust-pipe emissions in current car models. It has significant emission, however, of some toxins including formaldehyde and acetaldehyde, a suspected neurotoxin which has been banned as carcinogenic in California.

Ethanol is not some benign substance as we are led to think from the industry propaganda. It is highly corrosive to pipelines as well as to seals and fuel systems of existing car or other gasoline engines. It requires special new gas pumps. All that conversion costs money.

But the killer-diller about ethanol is that it holds at least 30% less energy per gallon than normal gasoline, translating into a loss in fuel economy per gallon of at least 25% over gasoline for an Ethanol E-85% blend. No advocate of the ethanol boondoggle addresses the huge social cost which is beginning to hit the dining room tables across the US, Europe and the rest of the world. Food prices are exploding as corn, soybeans and all cereal grain prices are going through the roof because of the astronomical—Congress-driven—demand for corn to burn for bio-fuel.

This year the Massachusetts Institute of Technology issued a report concluding that using corn-based ethanol instead of gasoline will have no impact on greenhouse gas emissions, and would even expand fossil fuel use due to increased demand for fertilizer and irrigation to expand acreage of ethanol crops. And according to MIT “natural gas consumption is 66% of total corn ethanol production energy,” meaning huge new strains on natural gas supply, pushing prices there higher.

The idea that the world can “grow” out of oil dependency with bio-fuels is the PR hype being used to sell what is shaping up to be the mist dangerous threat to the planet’s food supply since creation of patented genetically manipulated corn and crops.

The main reason US and world grain prices are soaring in the past two years and now pre-programmed to continue rising at a major pace, is the conversion of US farmland to become de facto bio-fuel factories. In 2006 US farmland devoted to bio-fuel crops increased by 48%. None of that land was replaced for food crop cultivation. The tax subsidies make it far too profitable to produce ethanol fuel.

Since 2001 the amount of maize used to produce bio-ethanol in the USA has risen 300%, trend increasing going forward. In fact, in 2006 US maize or corn crops for bio-fuel equaled the tonnage of corn used for export. In 2007 it is estimated it will exceed the corn for export by a hefty amount. The US is the world’s leading corn exporter, most going for animal feed to EU and other countries. The traditional USDA statistics on acreage planted to corn is no longer a useful metric of food prices as all marginal acreage is going for bio-fuel growing. The amount available for animal and human feed is actually declining.

Brazil and China are similarly switching from food to bio-fuels with large swatches of land.

A result of the bio-fuel revolution in agriculture is that world carryover or reserve stocks of grains have been plunging for six of the past seven years. Carryover reserve stocks of all grains fell at the end of 2006 to 57 days of consumption, the lowest level since 1972. Little wonder that world grain prices rose 100% over the past 12 months. This is just the start.

That decline in grain reserves, the measure of food security in event of drought or harvest failure—an increasingly common event in recent years—is pre-programmed to continue going as far ahead as the eye can see. Assuming modest world population increase annually of some 70 million people over the coming decade, especially in the Indian subcontinent and Africa, the stagnation or even decline in the tonnages of feed corn or other feed grains including rice that is harvested annually as growing amounts of bio-ethanol and other bio-fuels displaces food grain, in fact means we are just getting started on the greatest transformation of global agriculture since the introduction of the agribusiness revolution with fertilizers and mechanized farming after World War II. The difference is that this revolution is at the expense of food production. That preprograms exploding global grain prices, increased poverty and malnutrition. And the effect on gasoline import demand will be minimal.

Prof. M.A. Altieri of Berkeley University estimates that dedicating all USA corn and soybean production acreage to bio-fuels would only meet 12% of gasoline and 6% of diesel needs. He notes that though one-fifth of last year’s corn harvest went to bio-ethanol, it met a mere 3% of energy needs. But the farmland is converting at a record pace. In 2006 more than 50% of Iowa and South Dakota corn went to ethanol refineries. Farmers across the Midwest, desperate for more income after years of depressed corn prices, are abandoning traditional crop rotation to grow exclusively soybeans or corn with dramatic added impact on soil erosion and needs for added chemical pesticides. In the US some 41% of all herbicides used are already applied to corn. Monsanto and other makers of glyphosate herbicides like Roundup are clearly smiling on the way to the bank.

The Bush-Lula pact is just the start of a growing global rush to plant crops for bio-fuel. Huge sugarcane, palm oil and soy plantations for bio-fuel refining are taking over forests and grasslands in Brazil, Argentina, Colombia, Ecuador and Paraguay. Soy cultivation has already caused the deforestation of 21 million hectares in Brazil and 14 million ha in Argentina, with no end in sight, as world grain prices continue to rise. Soya is used for bio-diesel fuel.

China, desperate for energy sources, is a major player in bio-fuel cultivation, reducing food crop acreage there as well. In the EU most bio-diesel fuel is produced using rapeseed plants, a popular animal feed. The result? Meat prices around the globe are rising and set to continue rising as far ahead as the eye can see. The EU has a target requiring minimum bio-fuel content of 10%, a foolish demand that will set aside 18% of EU farmland to cultivate crops to be burned as bio-fuel.

Big oil is also driving the bio-fuels bandwagon. Prof. David Pimentel of Cornell University and other scientists claim that net energy output from bio-ethanol fuel is less than the fossil fuel energy used to produce the ethanol. Measuring all energy inputs to produce ethanol from production of nitrogen fertilizer to energy needed to clean the considerable waste from bio-fuel refineries, Pimintel’s research showed a net energy loss of 22% for bio-fuel—they use more energy than they produce. That translates into little threat to oil demand and huge profit for clever oil giants that re-profile themselves as “green energy” producers.

So it’s little wonder that ExxonMobil, Chevron and BP are all into bio-fuels. This past May, BP announced the largest ever R&D grant to a university, $500 million to the University of California-Berkeley to fund BP-dictated R&D into alternative energy including bio-fuels. Stanford’s Global Climate and Energy Program got $100 million from ExxonMobil; University of California-Davis got $25 million from Chevron for its Bio-energy Research Group. Princeton University’s Carbon Mitigation Initiative takes $15 million from BP.

Lord Browne, the disgraced former CEO of BP declared in 2006, “The world needs new technologies to maintain adequate supplies of energy for the future. We believe bioscience can bring immense benefits to the energy sector.” The bio-fuel market is booming like few others today. This all is a paradise for global agribusiness industrial companies like Cargill, ADM and Monsanto, Syngenta.

All this, combined with severe weather problems in China, Australia, Ukraine and large parts of the EU growing areas this harvest season, guarantee that grain prices are set to explode further in coming months and years. Some are gleefully reporting the end of the era of “cheap food.” With disappearing food security reserves and disappearing acreage going to plant corn and grains for food, the bio-fuel transformation will impact global food prices massively in coming years.

Uh Huh. The dramatic embrace of bio-fuels by the Bush Administration since 2005 has clearly been the global driver for soaring grain and food prices in the past 18 months. The evidence suggests this is no accident of sloppy legislative preparation. The US Government has been researching and developing bio-fuels since the 1970’s. The bio-ethanol architects did their homework we can be assured. It’s increasingly clear that the same people who brought us oil price inflation are now deliberately creating parallel food price inflation. We have had a rise in average oil prices of some 300% since the end of 2000 when George W. Bush and Dick Halliburton Cheney made oil the central preoccupation of US foreign policy.

Last year, as bio-ethanol production first became a major market factor, corn prices rose by some 130% on the Chicago in 14 months. It was more than known when Congress and the Bush Administration made their heavy push for bio-ethanol in 2005 that world grain reserves had been declining at alarming levels for several years at a time when global demand, driven especially by growing wealth And increasing meat consumption in China, was rising.

As a result of the diversion of record acreages of US and Brazilian corn and soybeans to bio-fuel production, food reserves are literally disappearing. Global food security, according to FAO data, is at its lowest since 1972. Curiously that was just the time that Henry Kissinger and the Nixon Administration engineered, in cahoots with Cargill and ADM—the major backers of the ethanol scam today—what was called The Great Grain Robbery, sale of huge volumes of US grain to the Soviet Union in exchange for sales of record volumes of Russian oil to the West. Both oil and corn prices rose by 1975 some 300-400% as a result. Just how that worked, I treated in detail in A Century of War: Anglo-American Oil Politics.

Today a new element has replaced USSR grain demand and harvest shortfalls. Bio-fuel demand, fed by US government subsidies is literally linking food prices to oil prices. The scale of the subsidized bio-fuel consumption has exploded so dramatically since the beginning of 2006 when the US Energy Policy Act of 2005 first began to impact crop planting decisions, not only in the USA, that there is emerging a de facto competition between people and cars for the same grains. Lester Brown recently noted, “We’re looking at competition in the global market between 800 million automobiles and the world’s two billion poorest people for the same commodity, the same grains. We are now in a new economic era where oil and food are interchangeable commodities because we can convert grain, sugar cane, soybeans—anything—into fuel for cars. In effect the price of oil is beginning to set the price of food.”

In the mid-1970’s Secretary of State Henry Kissinger, a protégé of the Rockefeller family and of its institutions stated, “Control the oil and you control entire nations; control the food and you control the people.” The same cast of characters who brought the world the Iraq war, the global scramble to control oil, who brought us patented genetically manipulated seeds and now Terminator suicide seeds, and who cry about the “problem of world over-population,” are now backing conversion of global grain production to burn as fuel at a time of declining global grain reserves. That alone should give pause for thought. As the popular saying goes, “Just because you’re paranoid doesn’t mean they aren’t out to get you.” F. William Engdahl July 26, 2007

Any author who cites food shortages in the turd world because we are converting grain to ethanol is probably also against big oil.
The author’s mention of Bush and Cheny and Haliburton and Monsanto as somehow conspiring to not only raise energy prices but food prices is a socialists way of saying that sharecroppers should be sharing their food rather than hoarding it for profit. American grain production has nothing to do with the capabilities of India or commie China feeding their masses. We are not obligated to feed those people although the globalist United Nothing view is that we should feed the world for free because we are a rich nation.

And any study from Berkley has to be suspect.

This whole article is a crock. We produce grain and we do whatever we want with it. The rest of the world will have to get over the fact that is is not our obligation to feed every starving pissant, regardless of what they think.

Living in Wisconsin farm country, I see food pricing going up and farmers point to the Biofuel fad as the reason. A case point is the link below... I don’t post often so please forgive the format errors :) - Please put me on your ping list!

http://www.forbes.com/prnewswire/feeds/prnewswire/2007/07/20/prnewswire200707201022PR_NEWS_B_WES_AQ_AQF038.html

If this is still true, how can even a 100% increase in the price of food corn create a large increase in the cost of cereal.

Seems like an excuse to raise prices.

If they raise cereal prices much I think you are right. However meat, eggs, milk are much more dependent on the cost of feed. So we could see some quite dramatic increases on those foods.

Very smart planning by our “leaders”. Perhaps they should be told that the people most duped by this whole “corn-for-ethanol” process are the poor. The grain growers are the real winners.

Our leaders are the best money can buy. I'm going to be interested to see when many farms in the third world switch over to ethanol.. how many millions of people in the third world end up starving to death. For you and me if the price of meat doubles its an inconvenience and we can use less or cut back on other areas of life. For a person just making it, they have to make due on maybe 40% less calories a day.

Well it will be another go in a long line of leftwing ideas that end up costing millions of lives. For example DDT, or the Chinese great leap forward.

So the farmer has to spend more to feed his livestock. He then can go and say “I am not going to sell you these eggs or this milk unless I get more money” and the buyer will fork over the money just because the farmer is paying more for feed?

Supply and Demand, not cost of production determines prices. Farmers may choose to not to raise chickens or cows if the costs get too great. Usually that depresses the price of beef or chicken in the short term as the farmers sell off their herds at a loss to avoid the costs of feeding them. Then after a while when the supply does not meet demand the prices goes up until it becomes profitable for more production until soon there is overproduction of the product and the price goes down.

People in the turd world were starving long before ethanol production started taking hold.
Ethanol does not take all the food, not even close to taking all the food. Most items with processed corn contain such small amounts of corn that a few cents a bushel difference in the price of the raw material compared to the finished product should not equate into the kind of increases we are seeing.

A by-product of ethanol is a high protein corn mash that is being fed to livestock as a feed suppliment. Again, a few pennies a bushel more for the processed feed grain should not substantially increase the cost of meat and poultry and eggs.

Another myth is that farm prices are set by farmers. That is not true. Farm prices are set by commodity traders at the Chicago Board of Trade. These traders speculate on supply and demand of particular items (oil included) and then set bid price on a commodity for the day. And prices can change from day to day because of outside factors like weather, trade deals, and government mandated crop reports that signal planting intentions for a growing season. There are also mandated livestock reports that are fed into the speculation factor. I suspect that most of the markup we see in farm commodity pricing comes well beyond the farm, and more in the pockets of middle men who use leverage of supply to justify pricing.

And finally. The cost of transportation. since fuel prices are up the cost of transporting and delivering grocerys has gone up accordingly. The grocers have to pass this cost on to the consumer.

The bottom line here is.......the price a farmer is paid is the smallest portion of the cost of food. Ethanol is a way for the farmer to realize much more profit from his investment than letting a middle man commodity broker set his price so he can add a markup when he resells.
People won’t starve because of ethanol. They were already starving and will always be starving somewhere, sometime.

This article is filled with BS. What the author is saying is that growing biomass does not capture more of the sun’s energy than that found in oil used to do the planting and processing. It is calculated that about 400 gallons of ethanol/acre of corn planted is captured. I planted 62 acres this year using about 30 gallons of diesel fuel, about 0.5 gallons/acre. Granted, I am not counting the fertilizer, but still, this article is way past rational. The other big point omitted from the article is the feed by-products remaining that is used to feed livestock. With continuing improvements in corn-based ethanol production, we can look at the future where 1000 gallons of ethanol/acre of corn is foreseeable.

If I can butt in, crop production is not a zero sum game. The increase in the value of corn (although it's not nearly as great as this article would want you to think - corn this morning was quoted at $3.11 per bushel on the CBOT) obviously creates an incentive to increase corn yields. Part of that increase comes at the expense of other less valuable crops, but part also comes from increased productivity.

Also, keep in mind that processing corn for ethanol removes only the starch, all other nutrients remain.

Currently it takes 11 Acres of Annual Agricultural land to make enough bio-diesel for one car for one year.

http://www.fapri.missouri.edu/outreach/publications/2006/biofuelconversions.pdf

There are approximately 224,000,000 cars driven annually in the U.S.

Currently US Agriculture is at maximum capacity. Just a 9% switch in existing Acreage has affected a rise in prices. So these would have to be additional acres. Even if we were to get that down to 1 acre per year for production we would need 224,000,000 additional acres.

The entire state of Texas is 167,550,080 Acres. 261,797 sq miles times 640 acres per sq. mile.

“Biofuels” or agriculturally produced fuel, is a niche fuel and an over 100 year old technology that should remain a niche fuel.

My opinion: for as long as possible I would rather get my energy from a 4” hole, than acres of land.

I would rather be dependent on foreign oil, than foreign food.

— lates
— jrawk

I went back home three weeks ago...to the farming community where I grew up. Same story....dry corn. Numerous folks have put up these pellet heating systems which can burn corn...so they grown corn to heat their house, and to sell to the bio fuels folks, the pellet heating folks, the cattle feed folks and the general food folks. Corn will double in price within three years and everyone will be trying to grow as much corn as possible. All corn-related products will do a huge jump in price shortly.

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