Soaring Grain Prices Prompt Wheat Thefts

Nothing, really.

The USDA, government, etc were advocating that farmers find “new markets” and “enlarge their markets” for existing commodities in the 90’s.

Corn (and other grain commodities) were holding constant prices since the 80’s, while inflation was hollowing out farmers’ real returns.

So the USDA kept touting this “free trade,” “increased exports,” “new markets” blah, blah, blah for years. YEARS. A decade, actually, we were hearing this pap.

As part of this, farmers started turning corn into ethanol. Then when MTBE was found to be problematic and environmentalists still insisted on an oxygenate in gasoline, the farm groups got ethanol switched in instead of MTBE. Enlarged markets, after all.

Now people are hysterically blaming ethanol for all commodity price increases, when the USDA report this very morning shows what the reality is: world demand is outstripping world supply. Period, end of story. Everything else is trimmings.

I appreciate your thoughtful reply especially revealing your bias. Other ethanol supporters refuse to reveal their biases. You are correct that exaggeration exists on both sides of the biofuels debate. Food prices are affected by a variety of factors. Traditionally weather has been a major influence in food commodity prices. Government interference in commodity markets has long been a factor also. Increasing demand due to advancement of developing countries will become an important factor driving future prices. Establishing the cause for the recent increase in food commodity prices is subject to debate. There are a variety of factors of which ethanol mandates are one part. Markets can have non linear behavior in the short run. One additional factor such as mandates or unexpected weather can cause a sharp change in prices.

I disagree with your assessment that biofuel mandates will not drive up food commodity prices in the long run. Biofuel mandates have the potential to substantially increase food commodity prices. On the other hand, depending on the nature of the future biofuels development, the price increases may not be substantial. I rate the potential for future price increases as high due to the permanent nature of the substantial mandates. We have never relied on agriculture to provide both food and fuel. I think it is terrible policy to impose huge biofuel mandates when the economic consequences of these mandates are unknown.

In my mind, the recent energy bill was just a central plan doomed to failure. The market should determine the proper mix of fuel sources, not politicians. Any industry provided with these levels of mandates and subsidies will become bloated and inefficient. I see the energy bill as permanently shielding the alternative energy market from competition.

I agree that biofuels will drive up some particular commodity prices in a limited time frame.

What I don’t agree with are these henny-penny projections that “we’re burning food” and “people are going to starve” as a result of this. I look at all these things through a long term, historical trend lens, not the news of the moment.

First, the commodity cycle I mentioned previously. Right now is a great time to be a farmer. 10 years from now, it won’t be, because as every American farmer knows, when commodity prices go up, up, up like they are today (and as they did in the early/mid 70’s), American farmers plant with incredible efficacy and there comes the inevitable commodity bust - as we saw from, oh, about 1979 to 1986. As mentioned previously, 1986 was a year that broke farmers (and farm equipment companies) coast-to-coast, as well as cratered the price of farmland.

Today, we’re just seeing a repeat of prior cyclical behavior. Further evidence of the cycle: farm land prices go up after residential real estate prices have peaked in their own cycle. And residential real estate has its own mania following an equities mania.

So let’s go down the list:

1. Equities mania: 1990’s to 2000: check.
2. Equities mania busts: 2001 to 2003: Check.
3. Residential real estate goes up, up, up: 2003 to 2006: check.
4. Commodities go up: Starting in 2000 - check.
5. #3 and #4 together mean that farmland prices go up. Check.

It is all following the historical patterns - which, we should NB, are not magical. There’s no huge mystery here — this is nothing more than repeated human behavior writ large, much like the way we can look at equities booms are nothing more than the Dutch tulip craze with a broker and a phone involved.

The biofuels issue, looked at through a historical perspective, doesn’t look all that new either. We HAVE used ag to provide food and fuel before — at the same time.

Let’s roll back the clock to 100 years ago — just before WWI. Look at how many acres were in production of pasture and hay for horses - both riding horses and draft horses. That hay was the “biofuel” of the day, and horses were the transportation and draft horses the pickup trucks of the day. Millions upon millions of acres devoted to hay production - and those millions of acres shifted production after we went to tractors around WWII. We’ve been here before, and we didn’t starve then. We won’t starve now.

Here’s the whole of the ag debate rolled into one pithy line:

“Show the American farmer a profit, he’ll show you a surplus.”

News flash: farmers have been turning corn into ethanol for centuries.

For drinking. Not for use as a substandard mass-mkt motor fuel.

News flash 2: People have been using crops for “fuel” for just as long.

News flash 3: In the past, the crop could be used only once - for fuel.

With corn-based ethanol, we get two bites at the apple, not one.

Your comparison to the pre WWI days is not realistic. The usage of hay was market driven, not mandate driven. When hay was eclipsed by tractors and oil, the land usage shifted. In addition, the country was much smaller then and farming methods were obviously much different. I do not place any value in such a comparison.

We have massive government interference in the energy business. This interference looks permanent. This massive interference makes me pessimistic about the future price and supply of energy. Any industry shielded from competition by permanent massive subsidies and mandates will be non competitive in the long run.

I disagree with your one line assessment of the biofuels debate. Here is my one line summary:

“Provide the alternative energy industry with permanent massive subsidies and mandates and it will produce a boondoggle.”

It’s nice to see that one thing never changes: people who get a rice bowl from the gummint will offer every specious argument in the world why their rice bowl should continue.

Won't be long before there's a black market demand for Granola.

But not in California. They're lousy with it there.

There are a few people here arguing that there will be no impact on price but it is a dog in the snow argument, put forth by fools.

Argue that there is no dog, but I see the tracks in the snow as clear as day.

If they had any real belief in the nonsensial musing that they pass off as factual, much like cow flatulence from eating grass, they would play with their own money in the futures market, much like I do, with the reverse positions of mine.

The price increase in grains and all foods will be large and permanent.
There is not even one refinery built that can process cellulose into fiber, and that type of investment will be huge, take decades to construct, and demand large returns on investment.

Money chases return, period.
The guv’mint will ensure that money is taken from us to help fund that.

Food prices are rising, they going to continue rising, and that reality will not change.

You ethanol promoters here are sheep, and I am happy to take your money in the market.

I want another Ferrari. - One is no longer enough.

Government interference didn’t stop the previous market cycles. There has been government interference in ag since about 1930, and the commodity price cycles have come and gone with, if anything, higher peak:trough levels.

If the malthusians can point their quavering fingers to the past, what with their profound ignorance of the incredible increases in yields today, then I can point to hay as fuel. If we want to level the playing field, I’ll do that too.

This ag commodity cycle won’t be any different than those in the past. There’s going to be a collapse in ag commodity prices - probably (from looking at past charts, etc) out about five to eight years.

There’s been interference in the oil market for as long (or longer, actually) than they’ve been playing in the ag markets. If you want to see biofuels be given a lesson by the market, then get the government(s) out of the oil market. When the “real thing” comes back into compliance with supply/demand signals, the alternatives (ie, “make believe” fuels) will collapse as well.

I’ve never taken a dime from the government for anything in ag.

Rice producers are, in fact, the biggest takers of US government ag largess, so you have that right.

I, however, have never taken a dime from the government for anything in ag. And I don’t grow rice.

The government interference has not been anywhere near this level. The 1996 farm bill was a major step to reform farm subsidies. The 2002 farm act and the 2005 and 2007 energy bills have taken us completely in the wrong direction to massive and unprecendented subsidies and mandates.

The government interference in the oil market is to make oil development and refining more difficult and expensive. The oil industry is subjected to a blizzard of taxes, regulations, and legal obstacles. I agree that we should stop this interference. This interference does not seem to be imposed on the alternative fuels industry. Comparatively, the alternative fuels industry has few problems getting approval for ethanol distillies, wind mills, solar plants, and new transmission capacity.

Ethanol boosters always seem to fall back on this absurd argument that oil is subsidized. They use this argument as justification for the massive subsidies and mandates provided to biofuel. These arguments have been made by two groups both of which are enemies of the oil industry: leftist groups who hate all kinds of energy and the biofuels industry that is looking for handouts.

If biofuels are so wonderful, you should denounce the subsidies and mandates or at least time limit the massive subsidies and mandates. Allow the market to determine the proper mix of fuel sources. Allow Brazilian ethanol into the country and subject ethanol to the same fuel taxes as gasoline.

''Rice bowl'' is the term used, uniformly, in the futures industry to describe gummint handouts of any type. It has nothing to do with growing rice, and the term has for some time been appropriated by assorted ''journalists''.

Regarding rice, this year: it is extremely likely that rice crop ''rice bowls'' will be at or near an all-time low. India has banned the export of rice, and Thailand is dancing nervously around the subject. More days than not, one can not get a firm export price for Asian-port rice. The US has the bulk of the swing rough crop. Rice might well be to 2008 what wheat was to 2007.

The reason why you and other people keep claiming that ethanol and other programs today are “unprecedented” is because you simply do not know your history of US ag programs.

So let’s go back to the start of it all: The Depression.

Go read up on the first “Big Cotton” program out there, the AAA, or Agricultural Adjustment Act. At first, it was a voluntary program to ask farmers who signed up for it to take out their cotton acres and be compensated (based on past yields) for doing so.

Since farmers back then were properly suspicious of Uncle Sugar, they resisted signing up for the program, even tho the USDA agents were working overtime and weekends (probably the last time that happened) to go door-to-door to sign farmers up in Texas, Mississippi, et al, across the southern cotton belt.

The sign up rate didn’t achieve what the clowns in DC wanted, so they passed an act making enrollment mandatory. Let’s summarize that: the government passed legislation to FORCE farmers to plow their already-planted crops under.

There has never been a repetition of this level of excess. People can try to point to the addition of ethanol to gasoline by mandate, but that wasn’t the result of farmers: that was the result of environmentalists; they wanted oxygenate added to gasoline, which was first MTBE, which screws up ground water supplies. Ethanol was proposed as an oxygenate when the environmentalists first wanted an oxygenate, but the oil companies won out and we went with MTBE. After the contamination of ground water supplies all over the US, the environmentalists and oil companies finally decided that if they were going to have an oxygenate, they should use something less damaging to groundwater supplies, and ethanol went in instead.

The mandate was already there. Ethanol was a valid solution to a real problem, caused by environmentalists, not farmers.

Oh, and as for claims that ethanol reduces mileage? So does MTBE. Complete wash there.

Back to Big Cotton and the AAA in the Depression:

The SCOTUS ruled the act unconstitutional in early 1936, but the damage had already been done. The feds then flung money, truckloads of money, into propping up farmers sharecroppers/tenant farmers at that time. Billions of dollars. The CCC started to provide loans to farmers as a result of the AAA, in addition to payments for tenant/sharecroppers to remain on the land.

The interference in ag during the FDR administration outstrips anything since if we adjust the dollar amounts for inflation. Adjusting for inflation, $1.00 in 1935 is $15+ today.

You can’t show me anything like that recently. At all. The AAA, the inception of the Soil Conservation Act (et al) and the various other commodity quota acts all were more intrusive and market disrupting than anything we’ve got today, even with the biofuel nonsense, because the Depression-era programs were all about mandatory removal of acres from production for long term periods, not diverting production to questionable uses.

The interference in cultivation practices, subsidies for changing practices, market interference by the government buying outputs directly to take them off the market, land taken out of production, etc, etc — we’ve never seen the like of the period during and after the Dustbowl days in inflation-adjusted dollars or (even more important) in acres. Today, acres are what matters more in the biofuel debate, and acres aren’t being removed from production. We can argue about what those acres are being used for, but they’re still in production.

I bring up the oil market interference because if the oil market were able to find its own level, many of these “biofuels” wouldn’t be remotely profitable - including such twaddle as hydrogen “power.” Hydrogen, for those of us who are engineers, is an even bigger energy boondoggle than ethanol. Trouble is, most of the “free market” proponents who carp endlessly about ag subsidies are utterly ignorant of the thermodynamics of hydrogen... so they keep carping about ethanol - presumably because they think that having a mouth, an anus and an appetite qualifies them to talk about food production - and prove to those of us who can actually recite the three laws of thermodynamics as well as know something about farming off the tops of our heads just how blind an eye these “free market” proponents have. It ruins all their credibility in one swift instant.

Then farmers get a hoot from is all the bellyaching and carping by “free market” proponents... who promptly change the subject when we bring up the Freddie/Fannie subsidy of the residential mortgage market since forever, the flood zone subsidies for homeowners, etc. How many of these “free market” proponents own their home free and clear? I do. Owned the whole place without debt or government meddling. If someone wants to take a swipe at me and their home mortgage is less than $417,000, they can peddle their “free market” BS to someone who cares, who won’t be me.

My hands are completely clean. No subsidies, no loans, no payment, no Freddie/Fannie/Farmer-Mac. No involvement in ethanol, corn or subsidized crops. Of any kind.

How many can claim the same thing?

You make a valid point about the history of the agricultural subsidies. That mistake is long past although agricultural subsidies have lived on. The depression was a time of unprecedented economic decline with complete rat control of government. Many mistakes were made in the depression era including farm mandates.

You are right about ethanol as a substitute for MTBE. However, the level of subsidies and mandates for ethanol and other biofuels is no longer as a simple oxygenate. We are not in any kind of depression (unless you listen to the rats). Even if you think that we need energy independence, mandates are a poor policy. I think energy independence is a bad idea and an impossible dream.

It seems that we agree that the massive mandates and subsidies for biofuels are poor policy. I have no doubt that biofuels can find a reasonable place in our energy mix. I just do not want a central plan dictating energy production levels. Farmers are only one part of the biofuel industy so I do not think that farmers have much influence in the mandates and subsidies.

I agree that other industries are heavily subsidized. My industry, education, is heavily subsidized. Education at all levels is a bloated and inefficient industry. I would like to see educational vouchers and privatization in the education industry. Almost all of my colleagues cry out for more subsidies. They are totally blind to the goal of servicing students at low cost.