Carrol
-----Original Message----- From: lbo-talk-bounces at lbo-talk.org [mailto:lbo-talk-bounces at lbo-talk.org] On Behalf Of Peter Fay Sent: Friday, February 18, 2011 5:03 PM To: lbo-talk at lbo-talk.org Subject: Re: [lbo-talk] Food Prices Again
I missed which year is being referenced here.
But corn would not need to rise first before wheat. Twice in the last few years huge numbers of producers abandoned other crops to go into corn.
However, the largest crop cuts were in soybeans taken out of production, driving soy prices up, and thus meat prices. A glut of producers switching to corn to hitch their wagons to ADM's lucre from lobbying the guppies in congress for the worst energy policy in decades - corn-based ethanol, affected all crops - wheat, soy, cotton, etc. which it seems return far lower dollars per acre than corn, particularly irrigated. Growth in corn output for ethanol not only cuts back on other crops, but takes unused (or rotated fallow land) back into corn production.
"Between the 2006-2007 and 2007-2008 marketing years, the number of acres planted in corn increased by about 15 million, whereas the num-ber of acres planted in soybeans fell by about 11 million. The increase of nearly 1 billion bushels in the corn used for producing ethanol required farmers to plant and harvest about 6 million additional acres of cropland. Under the assumption that those acres came from crop-land previously planted in soybeans (typically, corn and soybeans are grown in rotation on the same land), the increase in the price per bushel of soybeans caused by planting 6 million fewer acres was between $1.09 and $1.82.35<http://www.cbo.gov/ftpdocs/100xx/doc10057/MainText.4.1.shtml#111> Such an increase in soybean prices raised expen-ditures on food by between 0.2 percent and 0.3 percent, bringing the total effect to between 0.5 percent and 0.8 percent." http://www.cbo.gov/ftpdocs/100xx/doc10057/MainText.4.1.shtml
<http://www.cbo.gov/ftpdocs/100xx/doc10057/MainText.4.1.shtml> The U.S. ethanol industry will consume about 41 percent of the U.S. corn crop this year, or 15 percent of the global corn crop, according to Goldman Sachs analysts. http://www.reuters.com/article/2010/11/22/us-ethanol-gore-idUSTRE6AL3CN20101 122 <http://www.reuters.com/article/2010/11/22/us-ethanol-gore-idUSTRE6AL3CN2010 1122>
On Fri, Feb 18, 2011 at 3:39 PM, Gar Lipow <gar.lipow at gmail.com> wrote:
> On Fri, Feb 18, 2011 at 6:11 AM, brad <babscritique at gmail.com> wrote:
> > @ Gar- I agree with most of what you said and you offer a clear
> > explanation of what happened. But this part:"One of the fundamentals
> > driving that price bubble was rich nations buying grain and soybeans
> > to make ethanol and biodiesel - in essence power automobiles with
> > food." I don't understand. I know this is a common view on both the
> > left and most of the mainstream. But how exactly did ethanol cause
> > the price of wheat to rise before the price of corn went up? How did
> > ethanol cause the price of rise to go up when clearly they are not
> > substitutes on either the production or consumption side?
> >
> > Brad
>
> Not a short answer, but worth discussing:
>
> 1) Grains are to some extent substitutes. That is people will
> substitute rice or wheat for corn on occasion. Not a major driver but
> real.
>
> 2) A high percentage of corn is fed to animals. When corn prices rise,
> meat prices rise. We are getting a larger global "middle class"
> (defining middle class very broadly in a way that would be poverty
> level in the U.S. or France.) In Maxist terms, mostly a somewhat
> more prosperous segment of the working class combined with some actual
> growth in the middle class in the sense that Engels would probably
> have recognized. So even when meat prices rise meat consumption
> increases. But at the same time people who were just barely able to
> afford meat do drop back and start consuming more legumes and grains.
>
> 3) Soybeans, palm trees and other crops for biodiesel do displace
> other grains. Rice is a special case, but not all land where rice is
> grown are natural wetland; so rice fields can in many cases be
> reverted to other crops.
>
> 4) All this is well known. Anticipation of a rise in food prices is
> what led food commodities to be seen as a "safe" investment. So
> anticipation of rising food prices led to massive investment in
> various futures derivatives, which in turn led to massive rises in
> food prices. Maybe I should not have used the term "fundamental" in
> that context. It depends on whether you think the judgement would have
> been right in the absence of a speculative bubble. I I think it would
> have, but barely. In short it was about 90% speculation, but without
> the bubble we would still have seen modest increase of about 10% the
> size that actually occurred. Normal hedging might still have caused
> the increase to happen before the actual supply demand mismatch
> because of the fact that it was anticipated.
>
> > ___________________________________
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> >
>
>
>
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