Food is Becoming The New Oil, OPEC Shows The Way as Grain Prices Reach New Heights
What's good for the goose is good for the gander. As the world's governments acquiesce to the outrage of OPEC's collusion to manipulate the price of oil another storm is looming in the near distance. Grain prices are lurching forward. Wheat prices have reached new records and soybeans (including soybean oil and soybean meal) and corn are there as well. The UN is warning on the impact of rising food prices cautioning many nations may not be able to cope. Argentina, Russia and Kazakhstan have imposed restrictions on grain exports.
Where are prices going and what is at stake. Yesterday the price of wheat touched and passed $12 per bushel on the CBE. According to the USDA the variable cost (seed, fertilizer, energy) to grow plant and harvest an acre of wheat is $91 per acre. Each acre yields some 42 bushels of wheat (subject to some regional variances of course). Thus it costs approximately $2.61 to grow a bushel of wheat. Add to this the annual carrying cost of each acre of land, which can vary depending on local land values, land taxes etc. A figure of $1.75 per acre would be a fair estimate. Thus the cost to produce a bushel of wheat to an American farmer could be reasonably estimated at $4.36 per bushel.
At $12 a bushel per the calculations above, this would accord Farmer Jones a profit of just under $8.00 per bushel, a level as close to heaven as he has ever been even though it begins to present economic and social dangers for the rest of the world.
But wait, before one begins to pontificate about our farmers enriching themselves on the backs of the masses, consider this -- the price of another vital commodity, oil. Let's compare some profit margins. Here is our Farmer Jones, hard worker and diligent as he is, enjoying the fruits of his labor and enjoying a return of 300 percent, margins he has never seen before. Nothing to sneeze at but still pony league compared to the giants of finance who have been shown the door at Citicorp, Merrill Lynch and Countrywide.
Yet when it comes to bonanzas our friends in places like Saudi Arabia and Kuwait truly take the ring. They and the other charter members of OPEC have no limits to their rapaciousness. Today they are allocating oil (as in production quotas) to us and the rest of the world at prices that now exceed $100 a barrel. And this for the Saudis and Kuwaitis at production costs that are less than $1.50 (one dollar and fifty cents) a barrel.
So our Farmer Jones gets dirty looks with his 300 percent margin. This while our Saudi and Kuwaiti friends are welcomed in the halls of government and civil society with margins exceeding 6500 percent. The price of wheat with the same multiple would reach $283 per bushel. Let me repeat that number, $283 per bushel.
At those levels Farmer Jones would have to build a bunker on his farm spread and stock it with ample supplies of vintage wines and the best Kentucky bourbon. A lot of people are going to waiting outside with pitchforks.
If the agricultural sector was doing to us what the OPEC led oil patch is getting away with, the howls of outrage would be worldwide. Food riots, rationing would be the order of the day. Yet the oil sector gets away with the most outrageous market manipulation colluding to mark up their commodity to the most outrageous levels, and this outrage is met with barely a beep.
Ah, but you say, these are different commodities. Oil is finite, and if you believe the peak oil pranksters, in precipitous decline. As I have posted before, that is a highly questionable perception (see "Peak Oil is Snake Oil" 06.25.07), used all too willingly by the oil producers and their flacks to rationalize ever higher prices.
But that is not the point here. You see wheat, corn, soybeans are all in their way consummately finite. Without such mineral nutrient inputs as phosphates, potash, nitrates/nitrogen at planting, crop yields would collapse with crippling famine sweeping large swaths of the planet. And if oil is finite, then too are these basic minerals, the building blocks of chemical fertilizer. Not only are they as finite as oil, but often more limited and more difficult to access. Think the end of the "Green Revolution".
While the price of grains move sharply higher, there is no moral equivalence to hold them in check until outrage and concern is expressed and steps are taken to address the consummate distortion in the price of oil. Remember as we started, what's good for the goose is good for the gander.
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Ethanol is a nice idea and a boom for the farmers. It is also 25% less effiecient than gasoline so there is no cost savings. It creates a double whammy- it runs up the cost of corn and substitute feed grains and the cost of tranportation since it more ethanol isrequired to travel the same distance vs gasoline.
Its a politicians dream, a farmers windfall and a rip off to consumers.
Ethanol made from corn is a byproduct. After the carbohdrates are broken down and fermented into ethanol the rest of the protein is used as animal food. Corn kerrnel is 61% starch, which has little nutrional value as an animal feed. Using that to make ethanol and using the leftover for animal feed is a good use of all parts of the corn. Too many comments here that are based on ignorance and misunderstanding. People do NOT eat field corn. Field corn is animal food. Removing the carbohdrates and converting to fuel before the animal eats the protein is practical. Try to get educated before you spout stupid comments with no basis in reality.
I'm doubting farmers actually realize as high of a profit as you suggest. Farmer Smith earning 300% profit from $12 wheat bushels probably is not the case. A corporately-held agribusiness growing operation -- possibly, because it is run as a purely profit-driven enterprise. A family farm is not run that way, it's as much a way of life as a business.
Crop commodities are creeping upward specifically and largely because of OPEC's pricing. NO crops are cultivated, grown, harvested and shipped without oil. This is reality biting the farmer. It's the further squeezing of Farmer Smith, while he tries to reach MS America's standard of living of 15 years ago (but never quite gets there).
The current meltdown has solutions.
http://pac
Is anyone listening? There a need to alter attitudes and the American taxpayer is demonstrating the feelings now pervasive across middle America, at the voting booth.
Burning food in our cars, which is what the current scheme for ethanol is actually, is never a good idea and the result will of course cause our food prices to go up. In the mean time a scientifically and economically defensible approach supported with our tax dollars languishes due to squablling, infighting and quasi-philosophical grievences. If we're gonna stew in our own juices, let's hope it makes a nice soup.
Totally wrong and uninformed of the facts. Read and think before you spout your childish tantrums.
Cheney's Halliburton stock has increased his coffers tens of millions of dollars over the last 8 years. Why, it is working so well for him, he can't wait to lie us into a new war with Iran. Millions of dead U.S. teenage soldiers and Iraqui citizens, but ol' Sure-Shot, Halliburton Dick continues to rub his fingers together, counting his blood money. The man has no soul and has a free pass to hell.
Many posting comments on this column lament the loss of the family farm and the growth of large corporate farms. I agree.
My question is, do you believe in relief from the "Death Tax" in order to keep family farms passing from one generation to the next or is all just some big neocon scheme?
There is no such thing as the "Death Tax." That's just Republican for sticking it to the middle class. The Estate Tax is only on estates valued in, I think, excess of 2 million dollars. The maximum percent is 46. NO family farms have ever been lost to the estate tax. Corporate agri-businesses are the ones who own would have to worry about it, and since corporation aren't people, they don't have estates.
You shouldn't be bitchin' so much about OPEC and oil prices.
WHAT is our USA Halliburton, Cheney's corporation, doing by moving its headquarters to DUBAI??
Are they on a "charity mission"? NOT.
They are the manipulato
Look at THEIR BOTTOM LINE for the past 8 years!
Profiteering is the name of their game and
the goal of Bush's "mission accomplished".
Corn was cheap so some moron got the idea of turning it into ethanol and mixing it with gas. Some other greedy SOBs lobbied until congress mandated that ethanol was used as certain percentage of the auto fuel used in this country. So the price of corn went up and framers said hell why do I want to grow soybeans if corn is going for what it is so they stopped growing soybeans and turned to corn. So now this is proceeding to wash through the entire food supply raising the prices through the roof. We simply need to stop trying to put our food in the gas tank.
Well said.
Not to worry. It has already been proven that making ethanol from corn and most other grains and grasses is not cost effective. I think that within a year or two something else will come up. I vote for biofuels. Let's use all that fast food cooking oil for running our vehicles.
Americans need to organize themselves against big business. Everytown USA should start putting up windmills and solar fields to become energy independent. Small local operated grid to grid transport companies with electric and diesel buses should be utilized to provide dependable and desirable transportation for schools, jobs, and errands. Farms should be adopted by and supported locally including local markets/stores. Bring back mainstreet and small manufacturing and assembly. American enginuity must be promoted and family owned and local labor employed, this is already happening in many communities. Obviously, We don't need to consume everything available on the planet 24 a day everday of the year. An American Reality check is way past over due, that's why our bills are piling up around the world and we are losing our identity, and lost the high ground on being a Democracy.
Big Oil has us where they want us. Our way of life has evolved with all of us dependent on fossil-fuels. And now they can collectively unite and raise the cost to about any number they choose. What options do we have for "shopping" for a cheaper price? We live in suburbs and must transport ourselves to and from work. Big oil loves the situation they are have us in. About every human depends on gas to go about our lives. They have a guaranteed needy consumer. Sad to see food now being taken out of human digestion to feed the metal beasts. At least we have some room to maneuver in seeking other edibles. We are in a really sad predicament!
As other have pointed out, it ain't the farmers getting rich. The vertical integration of agribusiness squeezes the farmers from both ends. Certainly, BBacksoon has a point about some farmers...
The consumer can fix this. Visit eatwild dot org to find real farmers near you. Plant a garden. Join a Community Supported Agriculture program. Make connections and learn the skills that will help when our industrial agriculture system falls short. The real farmer John will probably feed you (if he knows you) even if you have no money. ConAgra, Monsanto, et al will let you starve.
If you can't buy oil at a price you can afford, then you stay at home.
If you are watching your children die because you can't afford food, you are going to kill someone to get it.
That is the difference between greedy farmers and OPEC. There should be a law against growing corn to make ethanol.
That is especially true since there is a tariff on foreign ethanol and American ethanol is subsidized. Corn based ethanol has little power compared to that made from sawgrass or cellulose.
Why do we continue using corn based ethanol when it drives up fuel prices, food prices, gives worse gas mileage and cannot be shipped through pipelines?
It is interesting to note that a large amount of oil is needed to harvest crops. Thus as the price of oil surges so shall the price of food. I think it is time to beg Chavez for some cheap oil.
Wheat, corn soybeans are commodities, the same as is oil. Are the speculators manipulating its price (as with oil) to line their pockets? The farmer's sure (as H@**) aren't seeing the $7 - 8/bushel profits
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