Global Food Prices Jump To Record Level Because of Higher Corn Prices – or the alternate title: Cornholing the future
There’s lot of gloom and doom being pushed, trying to link food prices to climate change by the usual howlers. As shown above, food prices surged to record levels in February despite February wheat and rice prices being essentially flat. Yet, February corn prices are up significantly even with 2010 being the 3rd largest U.S. corn crop ever. Why? Well part of the reason is that our cars now have a mandated, growing and voracious appetite for corn based ethanol.
Dr. Roger Pielke Jr. writes:
When certain information proves challenging to entrenched political or ideological commitments it can be easy for policy makers to ignore, downplay or even dismiss that information. It is a common dynamic and knows no political boundaries. Global Dashboard catches the Obama Administration selectively explaining the causes for increasing world food prices:
“The increase in February mostly reflected further gains in international maize prices, driven by strong demand amid tightening supplies, while prices rose marginally in the case of wheat and fell slightly in the case of rice.”
“In other words, this is mainly about corn. And who’s the biggest corn exporter in the world? The United States…And where is 40% of US corn production going this year? Ethanol, for use in US car engines.”
So here we having wailing and gnashing of teeth by the usual suspects over global food prices, and they are using this as an example of the supposed “climate change drive food prices” link. Of course there isn’t any link in this case. It’s the corn stupid.
The simple solution: stop burning food for fuel, drill for more oil, work on alternate energy system that actually might work, like thorium based nuclear power.
h/t to C3 headlines
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1. Farmers respond to higher prices by producing more food. Watch 2012.
2. Farmers share of final price is c. 20% of consumer price (in europe)
3. Share in 1960 greater than 40%
4. Price spike is speculation.
5. Fuel security is important.
6. Farmers and consumers do not benefit from price volatility. Numerous examples include The N.E. COMPACT OF THE 1980S.
7. Deal with it in the normal WUYT fashion, expert contributionplease.
If you spend a few minutes checking, you will find out I have been a regular participant on this forum for several years and post quite often on all manner of subjects including ethanol discussions. This is the first time I have ever seen 220mph post here. I have regularly posted on fuel ethanol for years on many forums because I got tired of folks who have no clue what they are talking about pushing bad information about it.
Why did I have so many posts in such a short time — because I spent all but about 6 hours of the last 58 hours working on line from home, working on 3 different computers. In fact I am about to get the first full nights sleep since Thursday night as soon as I finish this post. This discussion was very helpful in keeping me focused and alert while I watched a complex computer job stream run to completion.
I have driven with ethanol added fuel in my gas tank for over 30 years, and know it does not do harm to well cared for cars, and most of the “common knowledge” about ethanol in gasoline is not only wrong but in many cases the exact opposite of the truth. It sort of reminds me of the mis-information in the AGW community as a matter of fact. It is the scape goat for lots of mechanical problems and lots of mechanics use it as an excuse to rip off their customers for unnecessary repairs. I have used E85 in my personal cars for 8 years now, and I do encourage others to learn about it and use it if it fits their needs.
I also post on lots of other forums about a variety of subjects and fuel ethanol is a topic I do regularly contribute on when it comes up on the forums I regularly visit, but the oil drum is not a forum I have ever visited except to occasionally follow links others have posted to some of their more amusing threads, and I do not post there.
You can surmise what ever you want, but I do find it amusing that you are looking behind the curtains for some sinister plan, instead of looking at the information presented in this discussion and doing a little research on your own regarding fuel ethanol.
If I am a shill I sure would like to know where my pay check is!
Larry
eyesonu, they are all shills for ethanol. It doesn’t matter in the least whether they are paid or coordinate. What I love the most is their “scientific” claims of mileage. They run their truck on crappy ethanol, it can barely get out of its own way, then they claim the mileage isn’t so bad. Well duh! You would think these farmers and farm help would have a sense of what is practical, but they are all buying into the same circle jerk.
Richard M, “Poptech ignores my comment about complexity… To this the obvious simplistic answer. Many consumers love redistribution of wealth, especially of the liberal persuasion. So, since you are pro-consumer choice then you are clearly FOR it as well. See how easy it is to turn silly simplistic responses against you.”
But that has nothing to do with “consumer choice” which is an economic principle not a political one. Redistribution of wealth has nothing to do with consumer choice. You are confusing economic principles with political ones. All supporters of government intervention in the ethanol industry have the same problem and an inability to separate the two. What I have noticed is how easy it is to point out the logical fallacies in your arguments. Either you support free-markets or you support government intervention. So do you support government intervention? Because if you do then you are anti-consumer choice.
220mph, “meaningless pablum … I and others presented real world cost per mile numbers based on real prices of e85 and gas (e10) and real world MPG comparisons … I showed in my personal case I pay appx 23% less for e85 than gas (e10) – and that when using ethanol I get appx 19% lower MPG … for a net positive balance when I use e85 – others (or if you use sticker numbers) experience a slight net loss in mileage
You choose to ignore real world data – presenting meaningless”
I provided national average prices between E85 and regular gasoline from AAA. Are you saying they are lying? That is a much more honest way then cherry picking prices from an ethanol friendly state like you did or the other extreme, California or Hawaii.
Nothing you stated could be substantiated. You stating something is not “real world evidence” of anything. Everything I have shown has been supported with sources,
2011 Fuel Economy Guide (PDF) (EPA, pp. 21-24)
These numbers are confirmed in this study,
E85 and fuel efficiency: An empirical analysis of 2007 EPA test data (PDF)
(Energy Policy, Volume 36, Issue 3, pp. 1233-1235, March 2008)
– Matthew C. Roberts
“This study utilizes 2007 EPA fuel economy test data to arrive at the conclusion that in the currently offered flex fuel vehicle fleet, the average difference in fuel economy from using E85 and gasoline cannot be distinguished from the energy differences between the two fuels. These vehicles, however, exhibit a range of fuel efficiency differentials, however, so that although the average fuel economy differential cannot be statistically distinguished from the energy differential, certain vehicular characteristics are strongly associated with a smaller differential.”
The usage of a BTU adjustment is a statistically accurate way to get a good estimate of the expected loss in fuel economy between ethanol blends and regular gasoline.
220mph, “I was an ethanol skeptic before I became a proponennt”
So are you also a proponent of government subsidies to corn farmers and the ethanol industry, government mandates and government tariffs that protect inefficient businesses from competition and hurt consumers?
You are confusing economic principles with political ones.
No, it’s more a false logic … exactly like you’ve been doing for your last several posts. Sorry if the fact that you’ve been making illogical statements over and over again has evaded you. I’m simply pointed out how easy it is to make illogical statements. Obviously went right over your head.
So are you also a proponent of government subsidies to corn farmers and the ethanol industry, government mandates and government tariffs that protect inefficient businesses from competition and hurt consumers?
Another example of illogical thinking. Just because a person may support subsidies to corn farmers and/or the ethanol industry does not imply anything else you wrote in that sentence. I can see why you can’t hold a conversation. You derail yourself from simple logic all the time. Do yourself a favor, take a simple course in logic.
Dr Dave,
Sorry for the response delay, but I had some Reallife things going on yesterday!
You asked some important questions that deserve to answered.
Corn subsidies–all kinds of people here throwing knives at subsidies–and rightly so–but not as big a deal as some here may think. Here’s an explanation of my Farm Program benefits.
Every year, I sign a contract with the federal government that entitles me to program benefits if I farm a certain way. (mostly having to do with conservation practices)
The program benefits can be seperated into 3 specific areas:
1. Direct Payment: Is not crop specific. Payment is fixed and based on crop history and productivity. My payment amounts to roughly $18/acre. I do not know what the average is–but my payment is based on some pretty productive soils. To put that in perspective in my overall per/acre budget:
Production 200 bu/acre
Price $5.50/bushel (prices are spiking higher,but this what I can getnow)
Total Gross Revenue: $1,100/ acre
DCP Payment: $18.00/acre or approx. 2% of total gross revenue
This payment used to be much higher as a percent of total revenue when corn prices were down around $2.00/bushel.
2. Marketing Loan/Loan Deficiency Program
A short explanation of this complicated program because it is simply not a factor and I have not benefitted from it in years—which is a really really good thing. Basically a counter-cyclical program. When crop prices plummet to extremely low level this program sets a floor price. The government would pay me the difference between the set market price and the floor price. Real life example: there was a period of time in the ’90s when corn prices plummeted to about $1.48/ bu. (dont look that up on CBOT charts you techies–its not there. Program based on cash price which is not CBOT futures price–cash nearly always lower) Floor price is (and still is today) $1.98/bu, so that year I recieved about a $0.50/bu payment on this program. It kept me in business in some very tough,tough times. The reason this program means very little today is pretty obvious, the floor price has not moved, but my costs have–dramatically. I’m underwater if corn prices would drop to $3.50/bu. I’m broke @ur momisugly $1.98 and this doesnt kick in until lower than that.
3. Crop Insurance : Federal government shares the cost (ok subsidizes) of nearly all crop insurance policies. Used to be that govt. share approached 50%, but that has reduced over time to where I think its around 35%. The reason behind govt. subsidy on crop insurance was to encourage farmers to adopt modern risk-management practices. Farmers overall are risk-adverse–but previous generations were also very suspicious of insurance, and insurance companies to indemnify their crop risk. Today a little over 70% of cropland in the US is covered by some type of insurance. There could be a whole discussion on when/if the govt should get out of the risk management business that is not germain here. My insurance premium last year was about $10,000 (I do not cover all my acres–different discussion), so my subsidy on insurance was about $3,500.
That’s it–as you can see, Farm program is complicated (and I’ve have hugely simplified it here) but for a corn farmer in N. IL is not nearly as critical as is being made out here in this blog. In regards to being paid to fallow land that has been mentioned, the set-aside programs were phased out after the 1996 Farm Bill. The CRP program (Conservation Reserve Program) is not a set-aside program. The Federal government basically “rents” the acres enrolled and tells the owner what to grow on those acres.(usually prairie grasses/ shrubs) They are environmentally sensitive lands that have high erosion issues or have wildlife habitat benefits. The CRP lands are hugely popular with the duck/pheasant hunters in the pothill country in the Plains.
Sorry to be so long-winded, and I hope that I answered your question.
220mph says:
March 7, 2011 at 1:41 am
“Your claim correctly noted that increased CO2 DOES increase growth – it correctly notes that it increases biomass … what you failed to include from the tudies looking at increased CO2 effet on corn growth is that they found that while biomass increased it was at the expense of the ‘energy’ content (my term) of the corn ….in simple terms there was more plant quanity but less corn quality – and in effect a lower yield …. increased CO2 would be excellent for cellulosic ethanol which uses biomass, but worse for corn based ethanol as the energy in the plant was lower”
Dear 220, you have no idea what studies I looked at. In regard to “energy content” “your term” is not scientific at all. I showed several hundred results from over 50 studies. The result you speak of incidcated a possibility that there is a slight reduction, (about 7%) in protein concentration, but on overall increase of about 35% in bio mass. The end result of a SMALL decrease in concentration, but LARGE
increase of mass is MORE, not lesss, It is simply less concentrated.
That’s what they use in Brazil who produces more ethanol than we do and put up to 25% in their gasoline. It doesn’t affect the Amazon rain forest… YET. You could say that our tariff protections against cheap Brazilian sugar ethanol which protects US farmers and continues the need for US taxpayer funded supports/ federal mandates is also protecting the Amazon rain forest. Cut it down and we can have LOTS MORE cheap ethanol for a long time with little pressure on food prices – until it also eventually becomes insufficient to feed all the cars in China.
“A Note on Rising Food Prices”
If using cropland to grow food is so important, why do we grow tobacco?
Farming is a business. Car companies prefer to manufacture SUVs because they have a greater profit margin. Why do you expect farmers to behave differently? If growing corn for ethanol or growing tobacco for cigarettes is more profitable than growing food, the farmers will act appropriately. The solution to this problem is very simple: Make growing food more profitable!
Farmers are getting paid similar prices for a bushel of wheat that was received 50 years ago. Would you agree to work for the average wage that was being paid in 1960? Meanwhile, farmers are paying more for fuel, more for fertilizer, more for seed, etc. Often, there is no profit at all in growing food. If the price of food is going up, I say “Great!” Food is more important than upgrading your 42″ tv to a 60″ LED screen. Budget appropriately. The farmers deserve to earn a living too.
ew-3 says:
They are trying to shut down as many sources of energy as they can. They are strangling the country.
…exactly as was promised. Only nobody was really listening.
I’m becoming convinced that the best thing we can do is to let the Greens have their way completely, as quickly as possible. Start pushing their agenda more than they are. Let’s go green all the way – and let’s see how the general public likes it.
Richard M, “No, it’s more a false logic … exactly like you’ve been doing for your last several posts. Sorry if the fact that you’ve been making illogical statements over and over again has evaded you. I’m simply pointed out how easy it is to make illogical statements.”
No it is your false logic of improperly using an known economic term for political reasons and demonstrated you have no idea what you are talking about. Everything I have stated has been logical.
BTW if you support subsidies, you support wealth redistribution.
So are you also a proponent of government subsidies to corn farmers and the ethanol industry, government mandates and government tariffs that protect inefficient businesses from competition and hurt consumers?
“Another example of illogical thinking. Just because a person may support subsidies to corn farmers and/or the ethanol industry does not imply anything else you wrote in that sentence. I can see why you can’t hold a conversation. You derail yourself from simple logic all the time. Do yourself a favor, take a simple course in logic.”
So you support wealth redistribution to the corn and ethanol industries? Why do you support socialist policies? So far you have been attempting to evade the cognitive dissonance in your arguments,
Do you support government subsidies (wealth redistribution) to corn farmers and the ethanol industry?
Do you support government mandates that limit consumer choice and hurt consumers?
Do you support government tariffs that protect inefficient businesses from competition and hurt consumers?
jimlion, “When crop prices plummet to extremely low level this program sets a floor price. The government would pay me the difference between the set market price and the floor price. Real life example: there was a period of time in the ’90s when corn prices plummeted to about $1.48/ bu. (dont look that up on CBOT charts you techies–its not there. Program based on cash price which is not CBOT futures price–cash nearly always lower) Floor price is (and still is today) $1.98/bu, so that year I recieved about a $0.50/bu payment on this program. It kept me in business in some very tough,tough times. The reason this program means very little today is pretty obvious, the floor price has not moved, but my costs have–dramatically.”
There should be no such welfare system for farmers. If you cannot make money selling your crop, you should either adapt (sell something else) or go out of business. Keeping inefficient businesses alive only weakens the economy long term by robbing private capital via subsidies from economically viable production to those that are not. Those that can sell at those prices stay in business because they are more efficient and thus lower the cost to the consumer.
“I’m underwater if corn prices would drop to $3.50/bu. I’m broke @ur momisugly $1.98 and this doesnt kick in until lower than that.”
Either way not my problem and the government should not be involved.
“3. Crop Insurance : Federal government shares the cost (ok subsidizes) of nearly all crop insurance policies.”
That is because if you had to get real insurance you would be paying real premiums based on what the market would allow.
“The reason behind govt. subsidy on crop insurance was to encourage farmers to adopt modern risk-management practices. Farmers overall are risk-adverse–but previous generations were also very suspicious of insurance, and insurance companies to indemnify their crop risk.”
What do you think premiums do in a free-market? The higher the premiums means the practice is more risky to insure. You do not need government to force farmers to adopt risk-management practices, market forces does this on their own. With the biggest reason to adopt them – the ability to go out of business! Something government insurance and subsidies make less likely. Government insurance encourages risk taking because the premiums are not set by the market but by what some idiot bureaucrat thinks they should be – much lower than market rates. Government intervention in farming has hurt the consumer with higher prices by allowing inefficient farmers to stay in business.
Tain, “If using cropland to grow food is so important, why do we grow tobacco?”
Because growing tobacco is profitable and the amount of farm land growing it is in relation to consumer demand and profitability.
“Farming is a business. Car companies prefer to manufacture SUVs because they have a greater profit margin. Why do you expect farmers to behave differently?”
Car companies would prefer to make their cars out of 24 carat gold but that is irrelevant to what is actually sold. I don’t expect farmers to behave differently which is why I want all the government subsidies, mandates and protectionist tariffs removed.
“If growing corn for ethanol or growing tobacco for cigarettes is more profitable than growing food, the farmers will act appropriately. The solution to this problem is very simple: Make growing food more profitable!”
That is called competition and allowing inefficient businesses to fail. The ones that stay in business will be profitable.
“Farmers are getting paid similar prices for a bushel of wheat that was received 50 years ago. Meanwhile, farmers are paying more for fuel, more for fertilizer, more for seed, etc. Often, there is no profit at all in growing food. ”
So? Who cares? Then go out of business! Let the efficient farmers take up the slack.
“If the price of food is going up, I say “Great!””
Why am I not surprised to here a populist farmer be happy about the poor paying more for food just because they do not know how to efficiently run a business.
Yeah your right— E85 really sucks at high performance — it only holds several land speed records at Bonneville, and kicks butt at the drag strip.
Drag Chevette on E85
http://s272.photobucket.com/albums/jj161/DragChevette/?action=view¤t=ChevetteWheelie.mp4
E85 camaro
http://s29.photobucket.com/albums/c274/Eric68/?action=view¤t=M2U00144.mp4
Honda S2000 8.429 @ur momisugly 168.05
383 small block 30 psi boost — 1300.7 HP at 7600 RPM
Mustang 10.57 @ur momisugly 136.52
EVO VIII GSR running 8.75@ur momisugly162mph at the July 5th NSCRA event at PBIR.
BMW M5 running 10.57@ur momisugly130mph.
Mustang 251.741 mph at Bonneville on E85
http://www.rockettbrand.com/techsupport/videos/video.html
Chevy Cobalt SS Bonneville land speed record
156.073 mph with E85
172.680-mph with nitrous on E85
http://www.edmunds.com/car-safety/women-take-bonneville-by-ethanol-storm.html
E85 drag boat
899 hp dyno pull on a RX-7 E85 fuel
Larry
Just a link to a brilliant newspaper piece on why we should do away the with the ethanol subsidy.http://washingtonexaminer.com/opinion/op-eds/2011/03/energy-emperors-ethanol-wardrobe-looks-mighty-bare
jimlion,
Thank you, Sir for your very thorough and erudite explanation of ag subsidy. Most of us are not farmers and poorly understand the issue. If you’re in northern Illinois you obviously have some of the richest, most fertile farm land on the planet. I lived in Aurora for a couple years after after school and then practiced in Springfield for a year (actually 11 hideous months). When people who have never lived there hear “Illinois” they think of Chicago. Me, I think of miles and miles of crop land. I’ve seen the corn grow so high on both sides of I-55 that I felt like I was driving in a tunnel.
So let me ask you. Do you personally agree with federal subsidies? Do you believe they are actually necessary? Wouldn’t an unencumbered free market function more to your advantage? I hate the concept of subsidies, mandates and tariffs or centralized economic control of any industry. On a personal level I don’t begrudge subsidies to independent farmers nearly as much as loathe the practice of dumping subsidies on the energy industry. In the larger view farm subsidies are every bit as reprehensible as any other federal subsidy. You might not reap tremendous benefits from these subsidies but you KNOW that ADM enjoys a very significant benefit.
Again, thank you for your response. It was very instructive.
Dave
Hi Larry, thanks for the all the racing engine examples. How about your truck?
hotrod ( Larry L ) says:
March 7, 2011 at 9:53 am
“Yeah your [sic] right— E85 really sucks at high performance — it only holds several land speed records at Bonneville, and kicks butt at the drag strip.”
____________________________________________________
Forgive me, Larry, but this was a very “Duh” response. Alcohols, both methanol and ethanol lend themselves wonderfully for use in high compression, high performance engines. This is nothing new. The real story is fuel efficiency. I drive a 2001 Jeep Cherokee with a straight 6. I very rarely need to drive faster than about 80 mph but I hate filling up the 19 gal tank. I have a 1994 Mitsubishi 3000GT VR4 out in the driveway. It drinks premium gas and has a high compression engine. I keep the damn thing only because it’s so fun to drive. It’s faster than hell but I seldom drive it simply because it’s not a practical vehicle.
I don’t have a truck.
I do have Subaru WRX that holds the local strip record for the stock engine and turbo in that car, but it is slow compared to the other guys running E85. They run in the 10’s at 130+, I only manage very low 13’s and 103 mph, but it is a daily driver on street tires too, that gets 20 mpg on E85, vs 24 mpg on pump premium, although with the original stock turbo I got 22 mpg on E85. At that time it was costing me about 10 cents a mile on E85 vs 12.2 cents a mile on pump premium which was saving me over $350 a year on fuel, and giving me much better performance.
The car was rated at 227 hp from the factory at the flywheel and stock WRX’s typically put down 175 hp to the wheels at this altitude. I was making 220 hp at the wheels on E85 with the stock turbo, or about 261 hp at the flywheel, but I was only running 16.5 psi boost on that turbo. The serious WRX racers up here are running over 30 psi boost on E85 putting 500+ hp to the ground on a street driven car that will do 10.5 at 135 mph at this altitude.
Larry
Dr. Dave and Poptech,
I very much agree with both of you in regards to the basic macro-economic principles that you have both espoused.
Poptech, to be clear, I was not defending the practice of subsidation in agriculture–only trying to clarify what the economic benefits actually are within the Farm Bill as opposed to the hyperbole being said here and elsewhere.
Dr.Dave, I have personally struggled with your question my whole career. From a strictly abstract free market point of view, I abhorred the system I had to work within. It was contrary to everything that I had learned and believed in. However, I recognized that I did not live and farm in a vacuum. Agriculture profitability was absolutely tied to exporting our excess production or finding additional uses for it here (voila’ ethanol) and every country that we exported to had extensive agricultural tariffs or outright import quotas. European Common Market (now EU) were (and still is) the worst offenders. Huge producer subsidies, export dumping and ridiculous phyto-sanitary issues used to keep out “cheap” US grain. Basically I came to understand that as much as I wanted to operate as a “free market” business, the global barriers prevented. I eventually had to come to terms with reality and the “at least we are not as bad as they are” mentality set in. Add to the fact that despite all the “programs” that were supposed to minimize ag boom/bust cycles, we still had the boom of the late’70s, and then the embargo put on Russia by Carter brought on the crushing depression in the mid-eighties that we are only now shaking off. I would guess that most reading here never knew/forgotten that not so long ago we were literally drowning in corn and there was a great effort by many individuals to do exactly what you talked about Poptech. Change your product line or go out of business—most went out of business.
Anyway, enough of the history lesson, I hate subsidies and governmental interference in my business, but I reconcile that with global realities.
Not all environmentalists were pushing ethanol. That is an unfair generalization. There are those of us who are sane and prefer nuclear power rather than hokey ‘renewable energy’ schemes.
I never knew enviros ever pushed ethanol—they never liked farmers because we used evil chemicals and also because we were too good at what we did—feed more people!