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The Importance of the Corn Economy

Mar 5, 2008

Our food supply depends to a large extent on corn. We feed corn to cattle and cows to provide meat on the table and milk in our glass. It is fed to chickens to provide a staple in our diet and eggs for our morning breakfast. Corn is used to make fructose which is a basic ingredient used to satisfy our "sweet tooth". And, unfortunately, it is now used as a tool by global warming zealots who want to change our way of life.

The growing craze to adapt ethanol to a transportation fuel has such far reaching consequences that our and the entire world's economy, and all our food sources, are disastrously affected.

We have been warned by economists that the our growing dependence on corn will cause soaring prices for food if the nation suffers a drought in the Midwest but even now under "normal" conditions the costs of many foods have increased greatly just because of the present of ethanol binge. At the current rate of corn usage for nonfood purposes we can see eggs at well over $4.00 a dozen and meat prices skyrocketing.

Last year corn prices rose substantially and in the short time of this year so far corn prices have risen an additional 20% because of worldwide demand for corn as livestock feed, use in sweeteners and to produce ethanol. American farmers are foregoing other grains to plant high cash-producing corn. This monetary incentive has even caused wheat supplies to diminish such that wheat prices are also up 21% and soy prices rose 25% this year. One analyst, Bruce Babcock, an agricultural economist at Iowa State University, estimates that corn could reach $8 a bushel from $5.50 now if a water shortage caused by a rain shortfall occurs.

Babcock also said, referring to the cooling of ocean temperatures that often has a drying effect, "The risk of a drought right now is higher than normal because of the La NiƱa we are seeing." This is not idle speculation, since 1971 the United States has endured four major weather disasters that destroyed 21% to 29% of the corn crop at a time. Other natural weather calamities such as heat waves and cold spells have reduced production harvests by billions of bushels. In the past such disasters raised only food prices; in the future gasoline prices will be raised as well. That's because ethanol - produced from corn in the U.S. - will make up about 6% of the nation's gasoline fuel supply this year, and that's expected to rise to 10% over the next five years due to the "Energy Independence and Security Act" passed into law last year. In California alone the amount of ethanol used in gasoline is expected to grow at a faster rate, reaching 10% by 2010.

Bruce Babcock also said "If there were a crop shortfall, the rising price of corn would prevent ethanol distillers from earning a profit, prompting them to slash production". "Oil companies would have to fill any sudden gap with conventional gasoline."Prices would soar for both fuels", said Philip K. Verleger Jr., an energy economist in Aspen, Colorado.

Verlanger also pointed out: "One way to see this is to look at what happened last year. Industrial accidents, weather and other refining disruptions cut U.S. gasoline production about 10% in February 2007, sending wholesale prices soaring. If there were a crop failure now, we would likely try to ease the shortage by buying from any excess refining capacity outside the country".

It's not as if farmers would not be also affected if a drought occurs and corn production is decreased. The Los Angeles Times reported that Ron Heck, a fourth-generation soy and corn farmer from Perry, Iowa said "A drought would be bad for everyone. The high prices would hurt my customers, and I would have no crop to sell."

Increasing demand for gasoline exceeds refinery capacity so fuel prices will be tied even more closely to the size of the corn crop. Therefore, we might see a situation where even the threat of a drought could cause gas prices to rise. If this isn't bad enough, as long as oil prices continue to exceed $100 a barrel, it would still be profitable for them if ethanol distillers force up the price of corn to $7 a bushel, especially when the government subsidy is added in. The result would be food made directly from these commodities, such as bread, pasta and tortillas, and food made indirectly, such as pork, poultry, beef, milk and eggs, all staples of our diet, would raise the cost of living and cause increasing inflation.

Even the rest of the world would be affected. Because of the demand for these crops, a major shortfall in the U.S. would cause chaos in global grain and soy markets. This would also be exacerbated because of global food cost inflation. The United States has already said that future food distributions to poverty stricken populations will be curtailed as a result of present high prices here. Can you imagine how many more people in the world will suffer so global warming fanatics and misguided adherents in our government, and those profiting from this hoax (like Al Gore), can boast of cooperating with other countries and "experts" also taken in by this hoax?

Any further reduction in food availability will lead to the "politics of scarcity" (as reported in the Los Angeles Times), that is, when countries will stop exporting their domestic grain and soy crops to keep food prices under control for their own people. Countries like China, Russia and Argentina are imposing export tariffs to keep grains from leaving the country so as to protect their food supplies.

At what point will our goverenment bureaucrats have to make the hard choice; continue blindly with the ethanol production goals outlined in the 2007 Energy Independence and Security Act or make more corn available in the domestic and international food supply by changing the ethanol policy? Of course, another possibility is to lift tariffs on sugar-based ethanol from Brazil and start buying their competively priced ethanol, but this would not sit well with sugar beet producers and politicians from corn-belt states who like higher corn prices for their constituents.

A spike in food prices as may occur will also contribute to the possibility of a recession, or worse, by large price increases around the country. In the past we have had a separate food economy and a separate energy economy, not anymore; we can thank people who think Earth's climate change is due to mere humans and not the planet's historical dynamics for that.

Vincent Gioia is a retired patent attorney.


 

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