“This is either corn for feed or corn for fuel” - Richard L. Bond, President and CEO, Tyson Foods, Inc.

Thomas Jeffers & Company, LLC

The price of corn has risen sharply over the past year. One reason is because of poor crop yields in recent years. Another is demand for ethanol has increased. In previous posts I have outlined the risks associated with relying on food crops for transportation fuel.

“Tyson Foods Inc., the world's largest meat processor, warned Monday that rising corn prices could mean U.S. consumers will have to pay more for chicken, beef and pork next year as it ended its fiscal year with a third straight quarterly loss.

Bond said the price of corn, which is used as animal feed, is going up because of demand from ethanol plants that are springing up to provide alternative fuel sources to oil. Corn prices recently reached 10-year highs.

"I believe the American consumer is going to have to pay more for protein. We are at new levels on corn that are not likely going to be retrenching back to '06 levels," said Richard L. Bond, CEO, in a conference call with analysts.
Bond said meat producers, processors and retailers will have to pass the higher grain price on to consumers because they cannot absorb it in their profit margins.

"Quite frankly the American consumer is making a choice here. This is either corn for feed or corn for fuel, that's what's causing this," - Richard L. Bond, president and chief executive officer, - Yahoo Finance, 11.13.06

Allow me translate: We have an ETHANOL/CORN shortage brewing.

After you consider the aforementioned comments from Mr. Bond, please read the following comments from U.S. Secretary of Energy, Samuel Bodman:

"First off, as we all know, the global demand for energy is rising rapidly and will continue to do so. The Energy Information Administration (EIA) estimates that, by 2030, global energy consumption will grow by over 70 percent. Not surprisingly, the strongest growth is expected in developing economies in Asia – including China and India – with growth projected to triple in that region over the next 25 years.

Secondly, most national economies around the world, including the United States’, are fundamentally hydrocarbon-based. And they will remain so in the near-term. Though we estimate that oil’s share of total energy use will fall slightly in the coming decades (from 38 percent in 2003 to 33 percent in 2030), the demand for oil is still expected to grow strongly, reaching 118 million barrels per day by 2030. The United States, China, and India together will account for half of the projected growth in world oil demand. It’s fair to ask: is that type of growth even sustainable? Will the supply be available?

What I’m saying, is that this is a global problem and it goes like this: if we are to encourage economic growth around the world, if we are to raise living standards for all people of all nations the world needs a clean, affordable, diverse energy supply. If we look two or three or four decades into the future, we know that hydrocarbons alone will not meet the needs of a growing world economy. Even with all the technical expertise the world could offer and all the political will it could muster, eventually, we will run out of oil. And, even before then, the price of a dwindling supply will be prohibitive. At present, our world is overly focused on, and overly dependent upon, one source of energy. And that path is unsustainable." Samuel Bodman, U.S. Secretary of Energy, 11.11.06

2 decades out, Mr. Secretary? Not a chance, 2 years, maybe, but not 2 decades (3 and 4 decades is too silly to harass him about). How many American citizens know how the U.S. Department of Energy went about calculating demand? Not very many, but I love throwing a little light on this B.S. By extrapolating a never-ending increase in the supply of Oil, that's how. And the part about a “clean, affordable, diverse energy supply”? We've got a better chance with the tooth fairy, so I guess we ain’t “raising living standards” and we ain’t (my spell checker hates me) “encouraging economic growth”. However, Mr. Bodman should be credited with candor for this: "And, even before then, the price of a dwindling supply will be prohibitive."

They are getting close, the energy and political establishment. It's on the tip of their tongues, "Peak Oil". Can't quite say it, though: if they do they will give credibility to the scientists and mathematicians who have championed the concept and all of the really unpleasant economic side effects associated with declining energy supply will have to be addressed. Too, they will have to admit to an error in judgment (you know how much politicians and regulators are willing to do THAT), as a number of respected scientists have been telling the various government agencies of the coming Peak in world oil production for over a decade. Seems that, just like the Carbon Dioxide issue, our regulators would rather be sorry than safe.

“A Global problem” says Bodman. More like the end of Globalism, Mr. Secretary. Cheap and abundant energy is the only reason it is cheaper to make tennis shoes in China than the U.S. That supply line hasn’t got a lot of time left. “Made in America” won’t be a point of pride - it will be a necessity.

“At present, our world is overly focused on, and overly dependent upon, one source of energy. And that path is unsustainable." Talk about an understatement.

The colliding of the grain, carbon, and liquid fuels issues creates tremendous opportunities, but it won’t be business as usual. If you insist on business as usual, your business might not be here.

Greg Jeffers

Mentatt (at) yahoo (dot) com