Thursday brings the Department of Agriculture report on the prospective plantings for the new crop year and the quarterly grain storage report. In today’s WSJ, there was a piece titled, “U.S. Ethanol Industry May Pare Fuel-Blending Credit.” The readers of NOTES FROM UNDERGROUND know that the ETHANOL SUBSIDIES AND TARIFFS have been a major point of contention for me as I believe that the ethanol price supports have driven global grain prices higher and made a mockery of U.S. trade policy. The article said, “U.S. farmers are poised to increase plantings to take advantage of corn prices.” This is what I have been arguing: The higher corn prices go, the more land farmers take from growing other grains, thus driving beans and wheat and others higher as well. The ETHANOL LOBBY has argued that corn for ethanol is a benign effect … WRONG.
President Obama has given into the ETHANOL LOBBY because of its huge political clout. Rural, agricultural states have a huge amount of power in the electoral college system as well as having a disproportionate amount of power in Congress. There is also a quote from an Aaron Brady of Cambridge Energy Research that said, “Ethanol can be competitive with traditional fuels even without subsidies although there are times when high corn prices could make government aid necessary….” I hope this quote is out of context because CERA work on energy has always been above such blatant political pandering. So tomorrow will reveal the first intentions for the crops that the world is so desperately demanding.
Soybean acreage is probably lower because the high price of COTTON will mean that Southern farmers will rotate back to cotton and not plant BEANS. Cotton has already anticipated this, which is why new crop, December cotton, is trading nearly 70 cents under the MAY of 2011 contracts. That is known as backwardization of the old crop/new crop. I advise paying attention as the strong grain demand is being held accountable for driving up food prices. The farmers are being called upon to increase production to satisfy global demand. We will see how the market measures their intentions.
Thomas Hoenig delivered a must-read speech today at the London School of Economics. The retiring man from the Kansas City FED made it very clear why he voted not to do QE and subsequently raise rates while he was a voting member. After reviewing data covering the U.S., U.K., Germany and South Korea from 1960 to the present: “The relationship between negative rates and high inflation is unmistakable. Also, the relationship between negative rates and housing price busts in advanced economies since 1970 is instructive.”
Hoenig goes on to say, “Extended periods of accommodative policy,pursued to enhance short-term economic growth, are often HIGHLY DISRUPTIVE IN THEIR ECONOMIC EFFECTS.” (emphasis mine). Needless to say, we can surmise two things from Hoenig’s speech: He is not an advocate of Bernanke’s beloved PORTFOLIO BALANCE CHANNEL and he probably is/would not be buying TWO-YEAR TREASURIES. This is a very cogent speech from a departing FED REGIONAL PRESIDENT. He may not have a briefcase full of models but he seems to have a cranium packed with wisdom.
Tags: 2-Year Treasuries, CERA, CIA, corn, cotton, Department of Agriculture, ethanol, ethanol lobby, Fed, Financial Times, portfolio balance channel, QE, Robert Baer, soybeans, Syria, Thomas Hoenig, wheat
March 30, 2011 at 9:20 pm |
Subsidizing ethanol is better than subsidizing the corn producer to over produce, and then selling the excess production to importing nations at below the cost of production. The beneficiaries’ were the importing nations; the losers were the U.S Taxpayers and the international producers who could not produce grains at below the cost of production without taxpayer assistance which many did not receive. By subsidizing ethanol at least the money stays in the USA.
March 31, 2011 at 4:38 am |
Re subsidizing ethanol v. corn producers:
Maybe my knee’s jerking, but isn’t that the same logic that says keep the dollar weak to boost exports? If we can forget about scales of political reality, how about no subsidies, period? Those “domestic” dollars get managed just the same increasing the cost to taxpayers just the same.
Regarding Bob Baer, anyone interested in an objective view of Mid East situation and policy would do well to read all three of his books.
March 31, 2011 at 6:30 am |
Great Call on the Grains!!!
March 31, 2011 at 12:47 pm |
The Dems and Republicans know the same thing :
THE AVERAGE AMERICAN IS AS DUMB AND UNINFORMED AS A DOORKNOB. While your comments on ethanol are spot on the majority of americans are far to stupid to understand the the situation let alone the consequences. President Obama’s single biggest asset is he is the head of the party that wrote the book on stupid Americans.
April 1, 2011 at 1:00 am |
Hi Joe. I agree with you that no subsidies would be ideal Take them away! The ethanol and corn producers would at this time be profitable without tax payer money. But if the administration insists on subsidizing corn production by subsidizing ethanol production perhaps that is better than subsidizing the corn producer directly and then selling the over production to the world at below cost, as was done in the pre ethanol days. Remember that corn traded on June 29 2010 @ $3.2450/bu. even with ethanol production. Without ethanol perhaps corn may have been a $1.00 cheaper and the cries for help from the farm lobby would have been loud and unbearable.