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Raymond J. Learsy Headshot

OPEC At 50 Showing The Way To Rebuild America's Economy "As High As An Elephant's Eye"

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On September 14, 1960, fifty years ago, the Organization of Petroleum Exporting Countries (OPEC) was born in Baghdad dedicated to the "the coordination and unification of the petroleum policies of the Member Countries and the determination of the best means of safeguarding their interests." Their exponential success is legend, as they have become the leading force in manipulating prices to undreamed of levels. Cartelizing the world's most important commodity by conspiring to limit its availability, they have in effect held the world's economic well being at ransom and overseen the transfer of trillions of dollars to their insatiable coffers, all the while braying about their efforts to meet the world's energy needs.

On November 1999, in a speech at the Houston Forum Saudi oil Minister al-Naimi boasted that his country's "all inclusive" cost of production was less than $1.50 per barrel. As for discovering new reserves he boasted that Saudi Arabia spent "less than 10 cents per barrel."

The price of oil today on the New York Mercantile Exchange closed at over $75 per barrel. Did it cost the Saudi's more to pump a barrel of oil today than 11 years ago? Probably not in that the plant and equipment needed to pump the oil out of the ground had in all likelihood been amortized many years before. As to depletion, it seems the more the Saudi's pump the greater their reserves. Saudi reserves generally reported at 260 billion barrels are but a start according to our informative oil minister, Mr. Ali-al Naimi . "There are big chances to increase the kingdom's producible reserves by 200 billion barrels" he informed, "This will come either through new discoveries or increasing production from known deposits" being quoted in a statement issued on December 27, 2004 after opening new fields in eastern Saudi Arabia. Actually the potential is far greater still ( please see ""Peak Oil" RIP. Official Obit Frontpaged In The New York Times" 03.08.07).

So here we have a commodity costing some $1.50 per barrel to produce in Saudi Arabia, and probably not much more elsewhere in the production universe of OPEC, as well as in much of the installed capacity in other parts of the world where oil is also being pumped and sold into the market place some fifty times its cost.

But don't despair as we can learn from OPEC's success. You see we have a commodity easily as critical to the world's economy as oil. We have corn, we have wheat, we have soybeans- all grain crops critical to the world's food supply. We are the world's most efficient and in total, the largest grower of these food grains. The United States is the world's leading exporter of wheat, together with Brazil the largest exporter of soybeans and by far the leading exporter of corn supplying more than fifty percent of the world's rapidly increasing import needs , with its growing population and the world's changing dietary habits consuming increasing amounts of meat, milk, and eggs from animals that eat corn and wheat as feed.

An event in August has changed the fundamental importance of today's world food grain production. Russia, which had been playing a key role in meeting the world's rising import demand, suffered from the most severe drought in years decimating its spring wheat crop. Acting to protect its domestic needs, Russia embargoed all wheat exports leaving major importers such as Egypt, the world's No. 1 wheat importer, suddenly scrambling into the world wheat market to cover their needs. Not only did Russia's embargo create a specific wheat emergency but more importantly raised the specter of food shortages stirring memories of the shortages of 2008 which touched off food riots in many countries. Mr. Abdolreza Abbassian, secretary of the intergovernmental group on grains at the U.N. Food and Agricultural Organization was quoted, "The situation is very, very precarious. It will have a spillover to everywhere."

Oil/Corn, how do they relate. The marketing of oil could serve as a blueprint of where we go from here as food grains become a progressively scarce commodity.

As set forth above, the cost of oil production to the major OPEC producers is $1.50 a barrel, perhaps less.The cost to a farmer in the United States to grow a bushel of corn is probably in the range of $2 per bushel with wheat and soybeans marginally more.

OPEC, through its machinations has been able to structure a market dynamic permitting a return of some fifty times its production costs. The same calculation, were it achievable, would place corn at $100 per bushel and have our farmers thriving in yachts and MacMansions. Unrealistic? Highly. But it raises the question, simply put, if its tolerated for the Saudi's, the Venezuelans, the Kuwaitis et al, why not our farmers?

And of course the argument will go, "But oil is a depleting resource." Which in its purest sense is correct, but is it depleting when most every week a new reservoir of oil is found somewhere. Much the same can be said for agricultural output. To maintain yield, as every farmer knows, it is imperative to add plant nutrients to the soil, especially potash, phosphates and nitrates. And if oil is a depleting resource, so too are these minerals with which the enormous growth of farm yield productivity these last decades would be reversed. That being said, consider that OPEC is not the only cartel game in town.

In Canada there exists an export organization called Canpotex which does much the same as OPEC. Canpotex markets Canadian potash world wide with the exception of North America. It operates under a specific exemption for exports under Canada's competition laws allowing its three major potash producers to "collude" and coordinate sales outside North America. Canpotex can be viewed as a legalized cartel controlling potash production and prices.

In the United States there exists an exemption to anti trust laws allowing the formation of Webb Pomerene Associations:
The Webb-Pomerene Act, 15 U.S.C. 61-65, provides a limited antitrust exemption for the formation and operation of associations of otherwise competing ...
www.justice.gov/atr/public/guidelines/internat.htm -

permitting cooperation between producers in a given industry to coordinate and market their production into the export market as well.

Now, the key question. Would it not make sense for the agricultural sector of the nation, with the cooperation and help of the federal government to organize export associations for our grain producers, permitting them to maximize returns much in the spirit of the lessons learned from OPEC. Lessons having been enormously expensive lessons at that.

Are there issues with cartelizing the marketing of food grains? Of course. Yet the question needs be asked where was the indignation, the voiced concern of our government and its agencies such as the Department of Energy with the machinations of OPEC, and where has there ever been a moment of contriteness shown by our oil industry, its legion of lobbyists and its well oiled flacks (perhaps you have seen the recent television ad sponsored by the American Petroleum Institute militating against the government's proposed withdrawal of oil company tax loopholes) who have benefited all these years in the shadow of OPEC's success while the rest of the country's pockets were being emptied at gas stations throughout the land.

A coordinated export marketing policy focused on that segment of our economy where America's long standing agricultural tradition not only excels but now has world predominance, could well prove a bonanza for middle America. The states of Iowa, Illinois, Nebraska and Minnesota grow more than 50% of the nation's corn, the nations largest crop. The other corn producing States including Indiana, Wisconsin, South Dakota Kansas, Ohio and Kentucky would benefit greatly as well. Altogether, 39% percent of the entire world's corn crop was harvested in these States in 2009.

Consider what it might do for the economies of these States, for its workers, for its Middle Class, for our Main Streets. But perhaps, and sadly, it's all too far away from Wall Street for the Beltway gang to pay any heed. Or will we see prosperity and a dynamic in the nation once again, as it was hailed years ago in "Oklahoma!" where the "corn grows as high as an elephant's eye"!!