Monday, October 9, 2006

People don’t need to drive, but they do need to eat

Wheat futures rose to the highest prices in 10 years. As a matter of fact, they were closed lock limit up at the Chicago Board of Trade (that is industry speak for the maximum that prices are allowed to go up in a single day; lock limit down is the opposite). Corn prices are surging to multi year highs as well. Worldwide inventories, in terms of the number of days’ supply, are at their lowest levels in over 30 years. At this time we have somewhere between 57 and 56 days of grain supply in world carry over stocks. These 57 days of supply stand between us - and the abyss. So it’s a good thing to obsess over. The last time our days-of-supply was this low was 1972 - and grain prices doubled. Further, it was not just our days-of-supply that fell. Total production fell in 2005 and again in 2006.

The issue is not insignificant, if I may claim the use of understatement. What happened? How did we get here? Here are a couple of possible explanations...

1. The weather did it. Global warming, drought, excessively high temperatures…
2. Energy inputs have fallen in the agricultural system, thereby diminishing harvest yields

Or, perhaps some combination of the two. There was no disease issue. No locusts. No plagues. What if this trend should continue for a few more years? Think we might be motivated?

Still, whatever the cause, the fact is the public is being told by the federal government and our national politicians via brain dead, boob-tube reporters, that we need to wean ourselves off of imported oil and substitute said oil with, among other things, corn ethanol.

The only problem is – we might not have enough grain to feed everybody!

“The newest, potentially huge claimant on world grain supplies, the use of grain to produce fuel ethanol, is concentrated in the United States where a projected 55 million tons, or one fifth of the projected 268-million-ton corn harvest for 2006, will be used for this purpose. This year the climbing use of corn to produce automotive fuel will catch up with the U.S. export of corn, which is also estimated at 55 million tons (See Figure). For perspective, although 55 million tons is only 16 percent of the U.S. grain harvest, it exceeds the total grain harvest of Canada.” – Lester Brown, Earth Policy Institute

I am going to go out on a limb here and take a position. I believe that people will prefer eating to driving. There. I said it. I get paid the big bucks to make the tough calls.

Remember our worldwide grain inventory issues the next time some tooth capped, plastic surgery refugee of a TV reporter looks the camera squarely in the lens and tells you, the American public:

“What oil crisis? Don’t worry, be happy!”

mentatt (at) yahoo (dot) com

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