Choosing Corn Over Conservation:
The New York Times reports that the federal government is considering allowing farmers to plant corn on lands that have been set aside for conservation purposes under various government programs. The immediate impetus for the potential policy change is the midwestern floods, but the increase in food prices brought about by Washington's long love affair with ethanol looms large in the background. Were the federal government not requiring the use of ethanol as a motor fuel, the floods would not have had as large an impact on food prices. This is yet more evidence that there is nothing "pro-environment" about corn-based ethanol.
Once upon a time in Minnesota the gas stations had one pump that was "Ethanol Free." That pump always had a long line and there were no cars at the other pumps.
Of course, some of the people in the line at the ethanol free pump were liberals who didn't understand that "ethanol free" meant it was real gas with no ethanol in it. They thought they were going to get some free ethanol.
Perhaps if the environmentalists would allow some damns to be built, there wouldn't be so much flooding.
Lack of dams? On the Missouri? Wowee zowee, do a little research before you talk.
see here.
I bought a bag of corn chips the other day, 13 ounces, cost $2.50
There are 56 pounds in a bushel of corn, cost has been about $6.00 for most of the spring, though its been over $7.00 lately this comes to $0.125 per pound (16 ounces) of corn at $7.00
So the cost of corn in that $2.50 bag of chips was less than 12.5 cents, and that's wasting 3 ounces per pound.
Food in the US is very highly processed. Just as with that bag of chips, very little of the cost of any food derived from grain is for the grain itself. The cost of corn could go to $15.00 and the cost of that bag of chips, based on the cost of the corn, would go from $2.50 to $2.65.
The cost of corn has little to do with the cost of food, so any crop reduction due to the flooding will also have little to do with he cost of food.
Assuming an average of 20 mpg it costs $25/yr per mile of commute for each dollar increase in the cost of gasoline. Discounting money at 5% over 30 years gives a present value of about $400/mi per dollar increase. This should reduce the value of exurban property. Many people in Stockton commute into the Bay Area , a driving distance of 85 mile (one way). So an increase of $5 in the price of gas translates into a value reduction of $170,000. Knocking that amount off the value of a structure in Stockton makes it about worthless and the land would be more profitably used for farming.
The end of the corn planting season is Mid-may in Iowa. Corn can be planted later, with reduced yield, normally not considered worth doing after June 1. If corn planting gets late, that planting gets shifted to soybeans if the chemicals already applied will permit. Soybeans can be planted to about June 15, but that's stretching it.
Amen ChrisIowa! FWIW, repeating your calculation on the cost of corn in food is also illustrative when buying ears of corn. Yesterday I bought two ears for a total of $1. But on average a bushel of corn contains ~1,200 ears of corn. At $7/bu, each ear should cost ~0.6 cents. I paid a nine-fold premium on this price (50 cents per ear), which implies that corn as harvested accounts for only about 11% of the cost of retail corn. Distribution and markup must account for the rest.
Of course, none of this is meant to imply that corn ethanol makes environmental sense, or that subsidies for corn ethanol are justified. But corn ethanol's effects on food prices are often overstated, as these types of calculations illustrate.
Umm, actually McCain is still against ethanol subsidies.
...Oh, it's for ethanol? Well, then, that makes it A-OK.
I heard July 2nd as a cutoff for soybeans if the floods pull back by then.
The cost of corn has little to do with the cost of food, so any crop reduction due to the flooding will also have little to do with he cost of food.
What about corn that feeds animals for meat? I know thats not what you meant but do you think all the corn crop issues will affect meat prices through the next year?
Yeah, that wouldn't help much at all when the rivers are channelized and the ground runoff had been nearly denuded of native grasses. That's not a call for returning all ag back to prairie, but if there were but narrow bands of prairie grass between the fields and the natural streams it would provide enough of a reduction of runoff.
The importance of reducing runoff is that when it rains now the water flushes to the river creating higher highwater marks, and because the infiltration to the groundwater has been reduced we also have lower "normal" flow.
An additional problem from increased runoff from ag fields is the stunning amount of erosion, causing rivers to silt up faster than normal. For example Lake Pepin on the Upper Mississippi which has been around since the last Ice Age. It is now due to disappear in about 300 years because the sedimentation rate has increased about +85% faster after European settlers arrived in the region . . . all that runoff from farms dumping right into streams that feed the Mississippi. And Lake Pepin also has a dam at one end . . . not much help when the lake silts over.
Let's not forget the massive kill-zone in the Gulf of Mexico caused by farm runoff carrying pesticides and fertilizers. Dams won't help that, but natural buffers between farms and the streams will.
I'm guessing irony is not one of Javert's strengths.
A bushel will have 40-70 ears of corn, give or take, depending on the size of the ears.
Don't confuse the price of feed corn with the price of sweet corn. Sweet corn (the stuff you eat) is more expensive. If you paid 50 cents an ear for corn still in the husk, you paid a little too much (depending on where you are), but if the ear of corn was already husked and clean, you got it kind of cheap.
ChrisIowa - ".... bag of corn chips ...." People don't eat enough corn (1.5%) to have any price effect. Almost half the corn grown feeds animals, where each pound of live chicken requires two of corn, a pound of pork requires 4 of corn, and beef --as in hamburger-- is a 9:1 conversion.
One-fifth of American corn is exported. Of the one-third remainder, corn makes alcohols (25%), sweeteners and starches, and biodegradable plastics.
The cost of corn has
littlelots to do with the cost of food; just don't be so naive that it will be labeled 'corn chips'.Curt Fisher - Market corn (field, dent or flint corn, ie maize) prices have nothing to do with the vegetable you call 'ears of corn' --sweet corn or vegetable corn. They are genetically distinct and their uses cannot be interchanged. Comparing them is like comparing crude oil to corn oil.
I think a far more apt analogy is that comparing market corn to sweet corn is like comparing West Texas Intermediate crude oil to Arab Super Light crude oil. They are geographically distinct and their uses cannot be interchanged.
Great! Here's a table of calculations for chicken using your numbers. I assume that chicken costs $2/lb in the grocery store (although it rarely ever gets that low in my grocery store) and that it takes 1 lb of live chicken to get 0.5 lb of plucked, cleaned grocery store chicken.
$2 $/lb_storechicken
0.50 lb_storechicken / lb_livechicken
$1.00 $/lb_livechicken
2 lb_corn/lb_livechicken (your number)
$0.50 $/lb_corn
Thus, if the cost of corn were 100% of the grocery store chicken cost, corn would have to cost $0.5/lb.
But at $7/bu, corn costs about $0.13 / lb. This means corn represents 25% of the cost of chicken. That is, if corn were suddenly free, the price of chicken could only fall by 75% or so. Of course, if the price of chicken is higher than $2 / lb, corn represents even less of the total cost.
These calculations again show that the inflated cost of corn has a much smaller effect on food prices than is sometimes claimed.
Let me know if anything else around here makes you wince.
On another note, Senator X, regarding your stock picks, I would definitely stay away from any companies, such as Purina plants, that might be buying up some of that soon-to-be substandard wet corn product from the flooded Mississippi River basin area, you know with the aflatoxin problems and all. In fact, if investing in any horse feed stocks, I would definitely recommend picking feed companies that do not buy the cheapest corn leftovers after the enthanol companies complete their purchases of the best of the product β you know, it is the future expectation of the amount of dividends you are likely to receive, which is, of course, dependent on there not being any downward financial drag on the companies' profits, such as those pesky contaminated feed lawsuits.
Zarkov, interesting analysis, but how do you foresee Calif.'s Central Valley will return to agricultural production with the global warming shortages of water?
One saving grace is that prices for lambs are very good. We can get $150-175 for 4 month old slaughter lambs, no finishing required.
At least in these parts, there's lots of corn being grown. Having an ethanol plant ~20 miles away is been a boon for some corn growers. I just checked what they are paying for corn:
Delivery Period
06/22-30/2008
Basic Bid -32 (July08)
Cash Bid $6.89
CBOT Close $7.21 (July 08)
Frankly, I don't know how the ethanol plant can keep paying these types of prices for corn.
Yeah, the use of straight arithmetic for market conditionss for one.
That's what you think; that's not the market, not reality. Following a couple of the links before posting would reduce mistakes like that.
Fury - marginal producers will drop out. The remainder will have more control over carcass prices.
The save-spend decision doesn't have one answer. It depends on the time preference function of individuals and market conditions.
Looked at a house with a 1-acre lot recently. Said, "Gee, if I cut down those trees and plant corn I can really help pay off the mortgage."
I'll admit: you've definitely outsnarked me. In case you are interested, I did follow the links you posted; in fact I drew on them to post my comment at 3:38pm. Thanks for the info!
Did you have anything substantive to say in response to my comments?
What is so unusual about this? I once boarded my horse at a 20 acre former horse farm, where 3/4 of the land was replanted in vineyards, leaving only the horse stalls, indoor and outdoor arenas, and a couple turnout paddocks. First, the grapes almost froze, so the old man-owner got some tall windmills and put them amongst the hroses. Then, the birds moved in, started eating the grapes, and the old man got some cannons, as well, and installed them all around the horse stall, firing them off every five minutes to scare away the birds. He produced not only a grape crop, but cannon-shot ready horses rideable in a windfarm.
Call it unfettered capitalism.
" hroses" = horses
If we killed all the libertarians, they would be less demand for corns, and the floods would not have had as large an impact on food prices. This is yet more evidence that there is nothing "pro-environment" about not killing all the libertarians.
If we killed all the libertarians, there would be less demand for corn, and the floods would not have had as large an impact on food prices. This is yet more evidence that there is nothing "pro-environment" about not killing all the libertarians.
Perhaps if the environmentalists would allow some damns to be built, there wouldn't be so much flooding.
But consistency is. Best I can tell, you wrongly assume that it's the government's function to build dams.
Stockton has a lot of households. I'd be surprised if more than 1% had anyone employed in the Bay Area. Even if the number is 5% AND the extra commute cost forced them to quit working in the Bay Area, the value of houses in Stockton wouldn't drop by enough to justify converting houses back to farmland. (There's no economic value to converting one house and the conversion cost is non-trivial. You can't just tear down the house - you have to rip out all of the below-ground facilities, the foundation, and all of the hardscape.)
Corn does not become corn fructose or plastics or alcohols or any of the other products straight from the field. All of these take processing. The very simplest conversion is the grinding and cooking in corn chips. The processes to produce the other products are more intense and is more than the cost of the corn. Corn is still a small part of the cost of any of these products. A larger cost is actually the energy needed to do the processing.
Iowa City and Des Moines are protected by dams. Iowa City is protected by The Coralville Reservoir, Des Moines by the Saylorville Reservoir. The problem is that this year there was so much rain the reservoirs could not handle the volume. Both reservoirs filled to well above their emergency spillways, that's when the flooding happened. The reservoirs were already very full before that last couple weeks of rain at the end of May, and beginning of June. Last I checked, Saylorville was still full to above the emergency spillway, and will be discharging through that for several more days. Both reservoirs probably reduced the amount of flooding. This year nothing would have stopped it.
Filter strips may have reduced some of the smaller runoff events and in some years may prevent flooding, but would not have reduced this year's flooding event, there was just too much rain. Parts of Iowa got 15 inches of rain in two weeks, that's half our usual annual rainfall, and the year was wet before that.
Amen again! For example, in the case of corn ethanol, about 50% of the (non-solar) energy input required is on the farm (fertilizer, diesel for the tractors, electricity for irrigation, etc.). Roughly speaking, another 25% goes into distillation of the ethanol, and the remaining 25% goes into drying the distillers' dried grains (DDGS), a byproduct usually used as animal feed. So all in all its about 50/50 between the farm side and the refinery side.
Now that I think about it, it's worth noting that DDGS offsets a significant portion of the "lost" food going into ethanol production.
To summarize, I think there are many reasons to oppose the production of and subsidies for corn ethanol. The argument that corn ethanol drives up food prices, though, is a weak one at best.
Should have watched the news before I commented. Saylorville stopped using the emergency spillway today, much earlier than expected.