Saturday, April 26, 2008

Gonna Buy Me a Mercedes and Cruise Up and Down This Road

This cartoon really pisses me off. Why? Lets get into it right now.

A lot of news coverage is devoted to "food shortages," possible rationing, hoarding and penalties for hoarding. Yep, if you decide the feces is going to hit the rotational air movement device and actually plan ahead, there are those who think you should be penalized for it. Does the parable of the ant and the grasshopper come to mind? Only in today's potential world, the ant is kicked out on his ass and the grasshopper eats for free. Hopefully y'all realize there is a panic over nothing. It's not like the world isn't planting fencerow to fencerow even as we speak.

Then there is the grain alcohol issue.

I agree that ultimately the energy gained costs more than what is gained. But, as in all things political, there are a lot of misleading conceptions. One such line bandied about is "You can feed a person for a year on the corn it takes to fill a vehicle." I have yet to see what study or article verifies this, other than to see a basic variant of that quote. Is it wrong? I'm not sure - but exactly how many bushels of corn per gallon of fuel? The average amount of alcohol mixed in petroleum based gasoline is ten percent. So, let's say the average tank holds twenty gallons. Are you telling me it takes a year's worth of consumption to make two gallons of ethanol? Oh,come on.

Then, it apparently is assumed that the corn is destroyed or used up in the manufacturing process. That grain is lost forever as a food product, apparently. Wrong. Most of it is used as cattle feed. Remember that when someone tells you beef is so high priced because "All of the corn is used up making alcohol." Granted, beef is high because the corn used directly or indirectly is high, but the price is higher due to speculators/investors coming out of the housing market. The energy required to process corn directly into cattle feed is less than the energy required to make alcohol, but there is a significant amount of energy used. To break down the kernel and make it more digestible steam flaking is generally the preferred choice. Corn is stored in a large hopper and live steam injected until it reaches a certain moisture content. The corn is then dropped into a pair of mill rollers that crush the kernel into a flake. The combination of heat and pressure helps break down some of the more complex carbohydrates and also breaks open the waxy protective cover. You didn't think we just tossed a cow a cob of corn, did you? They can eat it, but there is no "feed value." Cattle don't digest it. By the way, this steam flaking process is used on wheat and grain sorghum/milo as well. Plus, grain is only a portion of the "ration" fed to cattle. Chopped hay (usually alfalfa), liquid fat (rendered fat from packing houses and "used cow dealers"), molasses, protein supplement, various drugs and hormones, and minerals (like salt). So, there are a lot of other things than corn involved in feeding cattle in the first place.

Like I said, I do believe that there is probably more energy used than gained in alcohol production. Will it stay the same? Will there be no advances in technology that improves the process? That is an open ended question as well, particularly since there is a lot of government subsidies supporting the industry. It is my belief that as there are more and more plants online, the competition will be more intense. Prices would drop as a result, and there would be major efforts to become more efficient. It sure wouldn't hurt to have a few more nuclear plants online, but now I'm really dreaming.

Well, then the high prices of grain must be making farmers rich, right? Jeff Danziger couldn't be wrong, could he? I can tell you my personal experience. I sold my wheat this year (1/3 crop as a landlord) right after harvest at bit under $6/bu. Why didn't I hang on to it? Because I had bills to pay, and had not had a successful harvest for over five years. If I had held on to it and could see the future, nine dollar wheat could have been mine! Last year I didn't even have a wheat crop - it was killed off by drought and replanted for this last summer. This summer, I won't have a crop at all. Dryland farming around here requires rotation. It is all in summer fallow this season, recuperating for next season. Well, how about farm payments? They usually pay the property taxes, maybe a little more, maybe not completely. In a world without price supports, grain embargoes - using grain and beef as a weapon in trade negotiations - I would say I should probably be out of business. I do hold some libertarian beliefs. But, it isn't a free market, and if y'all are gonna put the onus of having cheap food on my back, you'd better be for keeping people like me in business. If the day arrives when Tyson, Cargill, et al all achieve vertical integration, do you really believe that they will give a rat's ass about the market? They will be the market. Your food costs will be dependent wholly on their whims.

I've got two neighbors that are considered "big" farmers, even around here. They do a lot of collaborative work to save money and time. Frank W. James has an excellent post on the economies of scale. It's the same for farms as it is for WalMart - the bigger you are, the less your costs (hopefully). They and their families start at sunrise and end after sunset each and every day. Their children work, and work hard. Studies have shown (and I'm too lazy to look 'em up) that farmers generally make less than minimum wage after expenses are met. One of the farmers bought a new diesel Dodge the other day - it's his main work pickup with a flatbed, small hopper feeder, and bale fork on it. His old one has well over 200k on it, I'm sure. Its a far cry from "my other car is a Mercedes" although I'd be surprised if it didn't cost nearly the same as some of the midrange silver star offerings. It's not made for valet parking.

If you go here, you can look up people you know and how much they have received over the years. Hell, you can look me up if ya want. Yup, I'm raking it in. That'll buy me a fleet of Mercedes, right? Disclosure time - I drive a 2000 Chevy Z-71 extended cab pickup with 130k miles.

Are there abuses? Damn straight, skippy. It's a government program, what do you expect? If you look around on the EWG site, you can find a map of payments recieved by state, county or city.

Lot's o farmers in downtown Manhattan, eh? This sort of thing oversimplifies the issue, because they are just taking advantage of the programs, and obviously they are absentee landlords. I'm doing the same thing, other than I live on my ground, and I have a LOT less acreage.

So, what is the answer for high grain prices? I think the market will self correct due to outside influences. I've seen high prices go in the tank before. Remember I mentioned grain embargoes? They were a great weapon to use against the Soviet Union. Jimmah refused to sell grain to them, and George Meany refused to let his dockhands load ships bound for commie central. Guess what happened to wheat prices when demand was artificially removed? Do I believe that the president of price controls and rampant inflation was trying to monkey with grain prices as well? Do I think some of our potential fearless leaders think they can succeed where Jimmah failed, because he didn't have the right people or turn up the volume enough? The major news networks were harping on the high price of wheat and how it was hurting Joe Welfare Recipient in downtown Welfare City. Irving R. Levine was one of the "neutral correspondents." Well, Jimmah heard ya, and now economy of scale is more than a buzzword. Another one of the memes at the time that was publicised far less was "The cost of the bread wrapper is higher than the cost of the wheat in the bread." Oversimplification again, but it does make a valid point. Higher fuel costs are going to inflate the cost of the proverbial loaf of bread far more than the cost of the grain. And, that is another problem. Those huge four wheel drive tractors get mighty thirsty. They can easily burn through 150 gallons in a day, and that is for tractors in the 260hp range. A JD 9630T is rated at 530hp. Economies of scale, again. Two 260hp tractors are going to be far more expensive to run than one 9630T, if you can afford to buy one, plus the larger equipment it has to pull. Just for comparison, my Dad's last tractor was a JD 4440 rated at 130hp.

Worldwide, farmers are planting every possible acre to capitalize on the high prices. Here in the US we have the soil bank - Conservation Reserve Program. You know, the "pay the farmer for doing nothing" program. If there was an actual food shortage, that ground would be broken out so quickly it would make your head spin.

At any rate, most of the past reforms in the farm bills have failed. Capping benefits for individual farmers only made them put ground in their wives, kids and other relative's names. Some of these people I can see at the local diner at lunch, too, driving their Mercedes and using valet parking - oh wait - they're driving a pickup and eating at a local diner, because it's cheap and doesn't have valet parking. I don't have an answer for the farm bill. I wish it didn't exist, but I wish the EU nations, and most of our grain growing neighbors here in the Americas didn't have grain price supports to compete against us. But, they do. But, one thing I'm sure of is that Congress and our President (whomever he or she is) will hear the cries of the consumer and "do something" about high food costs, and we'll pay for it. You are welcome.


Anonymous said...

Good post, lots of truth in there.
Dropped by to thank you for posting to Leah's blog and give you the link to a new one. Hers was rendered useless after someone compromised the email account
that links to it. Google=useless. So we begin anew and throw away 4 years of work, drat!
Thank you for the prayers and comments.
Leah took 3 steps today unassisted!

Bob's Blog said...

Very interesting. It is really good to get your perspective. Victor Davis Hansen writes about similar issues today and there was this by the president of the Colorado Farm Bureau in the Rocky Mountain News today.

Jerry in Texas said...

Very true. Very few of the farmers around here get very flashy. Maybe they'll pave the driveway or get a Cadillac. Most likely, they'll purchase a new tractor or combine.

threecollie said...

Nice!! so write well. My other car is one that will get up the driveway..... and the newest tractor on this place is 20 years old. We still drive an old 930 Case that was made in '64 too.

nora leona said...

I've always made sure that I have a pretty good idea of what the Farm Bill says, mostly to be able to speak with some sense of what it actually says.
Growing up on a working farm and then working in the foodservice business I am always amazed that you can buy a hamburger for under $20 when you factor in all of the costs, labor and transportation that goes in to the finished product.

Now that I work for a nonprofit that rescues surplus food and prepares and delivers 2900 meals every single day in Indianapolis I pay attention to what is going on with the Farm Bill legislation (and am a big letter writer) because of the hunger relief pieces that are tucked in.

We don't get any government funding, but it is easier to convince companies to donate food with the changes in tax benefits. Now companies can deduct the retail value of the food, not the wholesale price.