Thursday, April 24, 2008

Farming Politics Prior To A Famine

This article just floored me. Basically, Congress is on the verge of passing a new farming bill. This occurs during a time when prices for crops are at an all-time high, and yet are extremely volatile. Farmers stand to make a bunch of money due to demand for corn-based ethanol, but are dumping other crops at a rapid pace to dive into this emerging market. Hence the volatility for other crops... No one knows what's going to happen this year on the markets, and just imagine if a major drought or other issues arise to decrease our supply.

But what really struck me just how Congress is replying to this increasing chaos in the farming markets: They're doing nothing. Nothing much, that is, and some congressmen are raging mad. Others, who come from states that give subsidies to farmers, don't have the support to take away the federal gifts appropriated to their constituents. Just look at this section:

"But even strong proponents of the bill, like Senator Tom Harkin, Democrat
of Iowa and chairman of the Agriculture Committee, concede that farm
interests are deeply entrenched and that there is little appetite for change
among many farm state lawmakers, especially when it comes to the direct
payment program.

The direct payments are based on the amount of land that certain farmers own, and Harkin, who has sought to eliminate the payments, said that many recipients of the money then use it to acquire more land and qualify for more payments.

"It's like the black hole in space that astronomers talk about, everything gets sucked in and nothing ever comes out," he said.

"This is the black hole of agriculture. It doesn't make sense, but farmers continue to get it." Harkin said there was not much he could do because, "I don't have the votes," adding, "People love free money."

Isn't that depressing? Leadership not willing to not only do what it takes to alleviate some of the stress caused by these markets on farmers (see this article for more on that subject) but on food prices, food availability, and whether or not this whole ethanol thing is really good for Americans in the first place! (On a side note, one place I read said that even though ethanol/gasoline mix (E85) is cheaper, $2.89/gal as opposed to $3.50/gal for unleaded, figuring in its inefficiencies on our engines (lower mpg) raises it's adjusted apples-to-apples comparison with gas to $3.65. And it may be worse for the environment.) So basically, people like free money and may not vote for you next time around, so don't fix anything and let the whole system tear itself apart. Nice.


Desiree said...

The whole E-85 thing astounds me. Really, who's bright idea was it to take our food supply and turn it into fuel? How could that ever be a good idea?

I'm especially miffed about the whole situation after seeing a story on NBC Nightly News on the rising world food shortage. I don't remember the name of the agency (that sends rice, etc to starving nations), but they claim they're feeding millions more people now than they were just a few months ago. That's insane.

We really need Christ to return... and this isn't even going to be the worst of it.

Charlie Triplett said...

Ya know, kids, you have to look at the big picture here: E-85 might be a (not the) factor in rising beef prices, but, ahem, cough, how much do you think that it costs to keep carriers, troops, submarines, military bases, tanks, a constant stream of brand new humvees, support vehicles, jet fuel, cargo planes, helicopters, etc. in the Gulf?

E-85 is a fantastic idea for producing fuel from an product that just a few short years ago, couldn't even be sold for much of a profit on the market. Our government was subsidizing farmers to NOT grow corn.

E-85 creates a market for corn, can reduce some of our independence on foreign oil (given enough time and acceptance), and still produces a cheap feedstock for cattle, so that we can still eat our cheap steaks at Outback.

Oh, and there's the benefit of E-85 not adding carbon to our atmosphere because, for those of us that understand the carbon cycle, it comes from plants. Studies that show otherwise are a complete crock with outrageous numbers.

If a vehicle is optimized to use ethanol, you can get practically the same mileage as you would with a standard car using gasoline (your car is optimized to run on regular unleaded, not premium unleaded). I know this for a fact, as I have done it: See 1998—competed in the first Ethanol Vehicle Challenge.

Mikeesee said...

That's it... Too much conflicting data. Let's just go back to blaming China again, shall we? :)

Aaron said...

A few things...

Number one... I'd be careful with any generalizations about farmers making record profits. This may be true with some of the large farming corporations, but the independent farmer is facing incredibly difficult times right now. I can speak to this from personal experience, as much of my family has been in this business for several generations.

Second, the ethanol craze is nothing but a hoax. It has created a link between the market for food and the market for oil – a link which should never exist. Crops for ethanol and for food must now compete for limited farming resources, and domestic oil prices, largely driven by a weakening dollar, divert more and more arable land to corn intended for ethanol production. So what happens? Food supplies dwindle, and prices for your basic staples such as wheat, corn, rice and oats rise. The price of rice has risen by 50% in the last two months, with similar increases seen across the board. Not a single industry expert predicts that this trend will change anytime soon.

Ethanol may be a “zero-carbon” fuel source, but it is simply incapable of meeting world energy demands, as the land available for farming is already being stretched to it’s limits of production. (That is, unless people want to give up more of their food for the sake of a “carbon-friendly” fuel. Hopefully we have more sense than that, though.) Like it or not, energy demand is continuing to rise in developed countries, and doing so at an even faster rate in emerging markets.

I work in the energy industry, and we’re continuing to lock in orders for the next ten years around the world. I can guarantee you that ethanol is not the solution to this. It may be able to contribute to the energy supply, but farmers cannot physically grow the volume of corn required to make a substantial dent in the world’s demand for oil. (If you are REALLY willing to look at the big picture, this is the reality you will see.) Given the complicated entanglements that ethanol has with the market for food, it would be best if this practice were abandoned completely.

I offer one proof of this entanglement: Ever notice that the price for ethanol goes with the price of oil? In my area it is always $0.30 lower than regular unleaded. Ethanol isn’t priced so that a certain rate of return is guaranteed on the product, it’s priced as an alternative to gasoline. (And yes, I’ve seen compromised mileage with ethanol as well.) As long as it’s cheaper than gasoline, though, it seems economically attractive to the consumer at the pump.

It should be quite obvious that a rise in oil prices only raises the volume of money being injected into the ethanol market and makes it even more attractive to massive farming operations which are able to exploit the market. What does this mean? They farm more corn for ethanol and less food for us to eat. Extremely foolish if you ask me.

Meeting food consumption demands should ALWAYS take first priority over growing corn for the purposes of ethanol production. As a rule, populations can endure gasoline shortages and rolling blackouts better than rolling famines; however, it seems that both are probably coming. I imagine the liberal-minded hippies will be a little less vocal about ethanol when they’re struggling to keep food on the table at home.

As for the war, the economic links between war expenditures are relatively far-removed from the massive global inflation being observed in the world’s food market. One country funding a war does not cause food prices to rise by 50% around the world. Let’s be realistic and objective here, and not just spout off liberal propaganda. Anytime they have been faced with a socio-economic problem in the last six years, the liberals have cried about the war. The war in the Middle East is not the cause of every problem in the United States.

Furthermore, there is a terrible imbalance of power in that part of the world which will eventually explode when the King of the South emerges. If Iran develops nuclear weapons, it WILL destroy Israel. If you read the specific end-time prophecies of the Bible, you see that the war in the Middle East will continue right up until the return of Jesus Christ. Jerusalem and its surrounding regions always have been, and will continue to be for a while longer, a point of contention for the entire world – and the fact of the matter is: this isn’t George Bush’s fault.

Aaron said...

Coincidentally, I saw this article online today:

He says it better than me.

Charlie Triplett said...

I think someone missed some points that were made here.

First of all, there is naturally no connection between the price of food and the war in Iraq. But people gripe about the price of how much food costs, and don't think about how much it will cost us to fund a war. That's not liberal propoganda, that's called a balance sheet.

Second, nobody in their right mind thinks ethanol is the solution to rising fuel prices, and I don't think I've seen anyone saying that.

Third, the rising price of corn and use of corn to produce ethanol is not related to the shortage of rice overseas. We grow mostly short grain rice in the States, with some long grain rice production in Arkansas. It's the long grain rice that's in short supply, short grain rice isn't as popular elsewhere.

Fourth, the only sector of agriculture that's upset over ethanol are cattle operations, because the price of feed stock has gone up.

Fifth, graagghh I hate the inter-web, it's such a stupid time sink. What do I care if someone is wrong on the internet? Who cares what the price of corn is tomorrow vs the cost of petroleum? After Christ returns, we'll all have hover cars and pet giraffes.

Aaron said...

"Ya know, kids, you have to look at the big picture here:"

As you correctly stated, I'm not directly paying for a war and neither are you. My tax rates haven't really changed as a result of the war, and neither have yours. The government is spending tax money and borrowed money to fund the war, which is several times removed from your daily food expenditures and mine. Government spending is not the same as individual spending. (Also, "those of us who understand finance" know that it's actually an income statement that would have continuing war expenditures on it and not a balance sheet, but that's a minor point.)

If ethanol isn't a solution for rising fuel prices, what exactly is it a solution for? Is it really a great triumph that a tiny percentage of our oil consumption is replaced by a fuel source from a "zero-carbon" cycle? Why should we pay significantly higher food prices for such a small gain? It isn’t just cattle operations that are affected by the ethanol craze, although, it was previously the case that "E-85... produces a cheap feedstock for cattle, so that we can still eat our cheap steaks at Outback." Sounds like a contradiction to me.

The entire livestock industry relies on corn (AKA "hominy") to feed their animals, including cattle, chickens, buffalo, hogs, sheep, etc. However, this extends far beyond just meat consumption; the entire dairy industry falls in this category as well. Even this doesn't just mean that meat and milk are more expensive, though. Any products made with these ingredients (AKA "derivatives") are bound to see price increases as well. This means ice cream, tortilla chips, and TV dinners, among others, will go up in price. Furthermore, as prices rise for these products, consumers gradually seek out other substitute goods, increasing demand, and hence price, for these products. There isn’t a single item in the grocery store that is unaffected by this.

"E-85 is a fantastic idea for producing fuel from an product that just a few short years ago, couldn't even be sold for much of a profit on the market."

The agriculture industry has always been relatively volatile. It has good years and bad years. A major storm or a minor drought can devastate crops and affect the price dramatically. However, the commodities market in Chicago was created for this purpose and has done quite a bit to stabilize these markets using grain elevators and futures contracts. However, recent changes brought about by the ethanol craze have now driven price volatility to levels previously unseen. See this article:

Mankind is making choices that are bringing about his own demise, and to say that this doesn't matter because we'll all have hover cars and pet giraffes is to lose sight of the big picture. Sure, our needs will be provided if we’re following God, but we’re still missing the whole point of these first six thousand years: that a society apart from God is unsustainable. To ignore the bad decisions mankind is making is to ignore the lessons of history and diminish this phase of the plan of God. There is a reason why man has been largely left to his own devices: to illustrate his own weakness and lack of wisdom, and to contrast that with the vast superiority of God’s ways.

Mikeesee said...

You know, as an engineer watching conflicts around the world erupt over a lack of resources, I began cheering on alternate fuel sources. I was mildly surprised that a Republican president would enact such programs. Now that it's done and we're seeing the fruits of such programs, both good and bad, it's makes me realize that, yes, we need God all the more. Yes, our ways suck. America could have relied more on hydrothermal, wind, tidal, solar and a host of other energy sources. We could have cut back on our gas hogs and the amount we heat our homes and install efficient devices everywhere like the Europeans keep moving to. But we didn't. We're grasping at straws now. And now other huge nations are following our greedy and selfish lead.

Charlie's original post merely states that one small aspect of my original argument doesn't fly, that cars can be built to be just as efficient on ethanol as others. The Big 3 doesn't want to do it. Google "motorhead messiah" and read about a guy that slapped a Duramax diesel in a Hummer and bumped its MPGs from 9 to 24 and its HP from 250+ to 600+. He's working to get 100 mpg from a Lincoln. The corporations are dragging their heels because either they're ignorant or don't have the money to invest in radical ideas because of stupid choices made over the last decades when foreign nationals came in and made us look silly (and still are).

Food prices everywhere are up because of many issues, along with demand for corn, including the growing richness of China and India, the global economy, the falling dollar, rising oil prices, increasing drought, governments being short-sighted and selling crops to other countries before feeding their own. I've read in a few places that it would only take one or two of these issues to be removed and the whole issue would be greatly lessened.

But mankind keeps making stupid decisions with industry, with business, and after all this time, farming practices, and when it comes time to pay the piper, we're grasping at the wind with some band-aid quick fix to solve the issue. If greed, egos and gross competition weren't the attitudes of these organizations, there might be a chance to slow and possibly reverse the terrible course we're already so far along on. But that's the ever-optimistic humanistic viewpoint that I place very little hope in. Yes, we should pay careful attention to this world's actions so we can carefully note what NOT to do. But we also need to figure out what is RIGHT to do, which we cannot learn from watching this world. The Big Picture is God's Kingdom and all the stuff we're screwing up now is merely making the whole of Creation groan while waiting for that time. May it come quickly.

Charlie Triplett said...

Last point: Think this through:

How much does it cost to run a war in Iraq? As Aaron points out, we're borrowing the money to do it, so it doesn't really affect us or our pocket book... yeah right. Tell that to our kids... and our grandkids...

Why are we fighting a war in Iraq? (outside of the sins of our nation) Terrorists funded by oil dollars decided to wipe out one of our financial centers and the Pentagon. So to bring the fight to them, and to begin playing the endgame of protecting energy, we sent the army there.

If we were not dependent on that region for our half our energy security, do you think we'd have armies there now? Did we have a relationship with these countries before we needed cheap oil?

I don't know about you, but I'd rather negotiate with farmers and commodity boards than with an IED.

And yes, I did mean balance sheet. Income doesn't mean much when you take out loans rather than cashflowing your expenses, meaning that your liabilities are growing.

At some point, your liabilites are an elephant, and your actual revenues, from which you derive cash flow won't ever catch up. It only takes a minor mishap to remove any ability to produce income. And that's called bankruptcy.

This is why so many foreclosures come about through lack of medical insurance - mortgaged to the hilt, additional car debt, 2nd mortgage, credit cards, and then a sickness that wipes out income (and adds debt).

A simple way to think of this is that assets feed you, liabilities eat you. Rather than building up assets of increased ethanol production and alternative energies, we're piling up liabilities of loans on an expensive war.

You can't sell a business without at least one of the following things: 1) a positive balance sheet (meaning that its assets can be sold off) or 2) Profits (otherwise it's not a business)

At some point, our nation may be shown to have neither of those, at which point Country Wide Mortgage forecloses on the house, sells it to the highest bidder (those with cash), and sues us for the difference. Why? Our liabiliies outweighed our assets.

I see the endgame going down like this: Country Wide (China, et. all) forecloses on our debts, and demands assets, of which we have none. So it sues us for anything we do have- which may very well be the remaining ag production, which will be used for a) food and b) fuel. We could still be producing food in this country, and going hungry at the same time. Example: During the Great Hunger, Ireland continued to export food to England.

Okay, okay, this is going nowhere. I'm out. Aaron wins, and I'm silly for burning E-85 in my pickup, even though the exhaust smells like booze.

Charlie can't blog.

Aaron said...

We were talking about ethanol – not fiscal policy and government spending – but if you want to talk about that, I’ll be more than happy to. I completely agree that assets feed you and liabilities eat you; I too am an avid reader of Robert Kiyosaki and Dave Ramsey. I’ve even played “Cash Flow” and I’ve only got a couple “Baby Steps” left.

I’d be a complete idiot to argue that the country and its constituents will never have to pay for its debts; the point I was making is that war expenditures do not affect our current market conditions in a direct, immediate way. A lag does exist, yet I fully understand how, given enough time, liabilities and interest eat up your cash flow and bankrupt you.

I also completely agree that we shouldn’t be so dependent on foreign countries for our energy. There should be more domestic drilling in the short term to alleviate the current pressures placed on the market. Over the long run, we need to also develop alternative, sustainable energy sources, and there are many options – some more practical than others.

Given the current situation, however, we don’t have a choice but to defend our oil interests overseas. It wasn’t wise to get into this position in the first place, but I still don’t understand how people who are continually burning oil in their cars everyday and using electricity which was produced from oil can complain about us fighting for more oil resources. That is an excellent example of ignorance, if you ask me.

I think we’re in complete agreement as far as financial decisions are concerned. The scenario you laid out for America’s finale also makes sense. (Deut. 28:30-34) Glad to see others are on board with sound personal finance decisions.

Kerr said...

Everyone is right given his information is the only information relevant...
We could keep going on given unlimited time and patience, but it doesn't matter, because with both sides presented, we still only have a fraction of the pertinent facts.
Really, the final conclusion has already been brought up multiple times: oh crap, this world is screwed (paraphrased). Whether this mistake is worse than that mistake is irrelevant.
And for the sake of making a point, things we haven't brought up yet (or I skipped over and didn't notice):
-different forms of fossil fuels (though more expensive to process, so thus far unused)
-modified engines that burn everyday gasoline, yet with less emissions than E85
-rap music