Thursday, February 17, 2011

Corn and Wheat going for broke

Corn closed up 3% today. Wheat up another 2%. Silver blasted up 4% to a new all time high - so much for my print day theory on Silver... but back to food and energy.

Farmers the world over are being given every freaking incentive possible to plant corn, beans, and wheat right up to their wive's flower boxes.  The old saying "the cure for high commodity prices is high prices" will be put to the test pretty severely.  I have no idea how to calculate the world crop system other than to look at prices, production, consumption, and inventory, and given world grain inventories were down (consumption was greater than production) in 7 of the past 11 years tells me that last year's inventory drop might not be a once in a lifetime event.

There are several feed back loops at work here. Oil is in short supply, so the U.S. uses its corn crop to make up for the short fall in gasoline... causing prices to rise, and ranchers to slaughter cattle, and the price increases in corn cause Egypt's underclass to revolt, which spreads to the Kingdom of Saudi Arabia/Algeria/Iran whoever, causing U.S. Oil imports to decline further putting more pressure on corn and ethanol prices....

I could do that a number of different ways... but you get the idea.

This is one of those things that is impossible to improve thru policy response, me thinks, although certain groups are sure to take a stab at it... the unintended consequences of forcing a "no corn for ethanol because its food" thing might well set off more sickness than the original disease.  I need to noodle it a bit more... It seems to me it is a personal problem requiring micro solutions or at least micro contingencies.

21 comments:

Jehu said...

I'd be perfectly satisfied with simply eliminating the subsidies and incentives to turn corn into ethanol. If farmers do that transform because the market wants the ethanol more than the corn, so be it. But let's quit putting our thumb on the scales.

Greg T. Jeffers said...

Perhaps... but if we stopped using ethanol for an oxygenate, what would we use in its place?

Greg T. Jeffers said...

We would still need SOMETHING as an oxygenate...

Jehu said...

I don't think 10% or 15% ethanol is required to replace MTBE. I'm not certain what percentage that function actually requires.

Anonymous said...

Last summer I drove through about 1800 miles of mighty fine looking cornfields, with a few bad patches north of liberal, KS, which utterly convinced me that the rumors of a disappointment in the corn crop was a bunch of hooey. Nebraska managed brings in the second largest crop in state history and it was considered an utter disappointment. WTF! If I recall correctly the overall crop was in the top 5 and it too was considered a disappointment. Expectations on corn are in deep outer-space by people who have no idea of what reasonable expectations are.

Most likely if we manage a record breaking harvest it will mildly disappoint, anything less will severely disappoint. However, if by the grace of god we somehow manage a six sigma harvest, then maybe it will meet expectations. Good luck with that.

Best,
Dan

Anonymous said...

Why oxygenate the fuel? It lowers the energy density giving up most of the gains in lower emissions. It raises the cost and causes distribution problems; just what you don’t need when you already have supply concerns. I wouldn’t be the least bit surprised if oxygenated fuels benefits are as thin as ethanol’s.

Best,
Dan

Anonymous said...

From the findings of a 1997 EPA study; starting on page 8 :

“Studies of the effects of fuel oxygenates on vehicle emissions show a consistent reduction of CO emissions at ambient temperatures above about 50 F. At temperatures below 50 F, the magnitude of the reduction is decreased and very uncertain.”

“Older technology vehicles (carbureted and oxidation catalysts) benefit more from the use of oxygenated fuel.”

“Current data are too limited to quantify health benefits of reduced ambient CO from wintertime use of oxygenated fuels.”

Basically the winter fuel blend doesn’t work when it’s cold outside; even then it mainly benefits an ever decreasing portion of older carbureted vehicles; and after a nearly decade of implementation they still couldn’t quantify the benefits-if any. What’s a real winner they got there.

Best,
Dan

Greg T. Jeffers said...

Dan:

This is not field of interest BUT I think the oxygenate issue is a big one for big metro and high density areas.

On the crop thing... grain production exploded over the past decade - and still the crop was short 7 out of 11 years. No question about ethanol's roll in that. On the other hand... I have no idea how it all balances out since eating field corn is not really a replacement for the meat, milk & eggs it helps to produce nor do I have any idea, given how Americans look, what would be a better or more optimal food stuff output.

The numbers strike me as F.U. The rest needs to be given some thought by a number of smart folks, and still my bet is that identifying the problem and actually fixing it are very different things.

Greg T. Jeffers said...

Jehu:

I think 6% does the trick.

Charles said...

For me and you, if the price of bread goes up 40% we just eat fewer sandwiches. For those poor folk who spend 80% of their income on basic foodstuffs, a 40% hike equals starvation.

50% of the world population live on less than $2 a day, and 33% on less than $1 a day. That's their working wage, not their social security cheque. Now we have passed the point where 50% of people live in cities, where they have to work today for their family to eat tomorrow, and they no longer have access to land to grow ANY food, this crisis means real starvation and death for 2 or 3 billion people.

When I was born there were an estimated 2 billion on Earth, now there are 7 billion. I think we're probably very close to Peak People too.

Greg T. Jeffers said...

Charles:

I think that's essentially the point... and I dont think that we can soften "peak people" with a policy response... ergo, best not to be one of the...

Stephen B. said...

Greg and Charles basically have just said it. Along with Peak cows as discussed previously, here we have arrived, or nearly so, at Peak People.

I now realize that somehow I had been expecting Peak People to trail Peak Oil a goodly amount of years down the road, but I think we've gotten there quite a bit sooner.

Hmmmm.

I see Yemen is erupting now.

The next stage is when these countries manage to put political reforms in place (via whatever means) and then they realize that they're *still* hungry, starving, and poor. There but for the grace of G-d go I (or we.)

PioneerPreppy said...

I know all through Northern Missouri up into Iowa and Illinois the corn crop was dismal. The rains forced delays in planting, then it stayed way to cool and when it finally did warm up it went way up and stayed dry. It didn't die off but it didn't produce much either, or so the locals reported. The early heavy rains took it's toll on alot of crops from Missouri to Indiana and Ohio.

Without oil we would have reached peak population years ago. As it declines I guess the population is going to have to decline as well.

My guess is we won't really see it for what it is though. Political strife will erupt before the population peak forces the issue.

Anonymous said...

Here is thedisappointing corn crop; our third largest crop in history. The problem is that the USDA’s yield assumptions out to 2020 are an exponential function with a bit of stretching. Anyone who thinks we are going to get average yields up from the current 150 bushels/acre to 300 bushels/acre over the next couple of decades has rocks in their head.

Best,
Dan

Anonymous said...

Greg,

I’m not particularly interested in oxygenate either, however it looks like a net looser. When a quick Google search turns up an EPA report that basically states: it doesn’t work and all the improvements came from more efficient cars but we need to try harder; all is not well. Another government SNAFU.

Best,
Dan

PioneerPreppy said...

With almost 3% more overall farmland planted in corn for 2010 than during the previous high yield year of 2009. Average yields were actually down over 10% comparably for edible corn. Silage actually averaged the same as 2009. Also interesting is that Maryland and Delaware showed marked increases in yield.

The actual numbers of acres and forecast means little or nothing to me however. What matters is what the individual farmers and world consumers have come to expect. As the graph you linked points out yields have continuously risen with world population, technology and oil usage. When the harvest fails it is much more of an issue now.

10% casualties to a unit in battle is technically proclaimed as decimated. I think 10% average reduction in harvest yield is pretty bad not only for the consumers but for the farmers as well.

So really this 10 to 12% decline was pretty huge and was even more an issue in the Mid West.

PioneerPreppy said...

OOps I read that wrong Maryland and Delaware production were down as well.

PioneerPreppy said...

Further more, and I didn't need a chart to tell me this but here it is.

http://www.nass.usda.gov/Statistics_by_State/Missouri/Publications/Press_Releases/20110112-Annual_Crop_Production.asp

Missouri corn production was down 17% OUCH

Corn grain production in Missouri during 2010 totaled 369 million bushels, 17 percent below last year. Disappointing yields for the State averaged 123 bushels per acre, down 30 bushels from the 2009 yield. Corn for grain was produced from 3.00 million acres, while 60,000 acres were cut for silage, producing 900,000 tons. Acreage harvested for grain was 3 percent above last year while silage acreage was up 10,000 acres.

Anonymous said...

The extra land planted was marginal land that couldn’t produce much. The land that actually does produce 300 bushels/acre is planted first, at least until it wears out. So, it seems to me that it is entirely reasonable to expect yields to go down if acreage goes up. Also, corn is planted over large swaths of the country so a few hundred square miles of low yield here and there are to be expected; with the bad areas generally being offset with good areas that had weather that was better than can generally be expected.

This is not to say that disasters don’t happen; we occasionally have truly bad years and failed crops. The Floridian and Mexican spring produce are probably going to be an utter disaster this year due to the blizzard. But what I think is happening is that they are forecasting based on need instead of what they can realistically expect to get and that ain’t gonna work.

I’m not all doom and gloom though; I think that yields can be increased dramatically with massive inputs of human labor. Just walk through any cornfield after harvest and look what’s left lying on the ground, there is a lot of room for improvement if need be.

Best,
Dan

PioneerPreppy said...

Just walk through any cornfield after harvest and look what’s left lying on the ground, there is a lot of room for improvement if need be.

I wouldn't say that too loudly Dan. Millions of starving Canada geese and deer will come to your house in protest. :)

Greg T. Jeffers said...

Dan:

I don't see doom and gloom in the U.S... I see it in the MENA and with that comes the repercussions in the Oil markets which has some very direct effects on the U.S.