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Another Perspective

A Corny Tale

By on 9.21.11 @ 6:07AM

We have China to thank for a decline in U.S. farm subsidies.

Farm subsidies, mostly in the form of price supports, have been with us since the 1930s, but they may be going the way of the dodo bird. Thanks to growing worldwide demand and especially China’s expanding middle class, the price of U.S. corn and soybeans is too high to trigger subsidies any longer.

The result is that U.S. Department of Agriculture offices in farm states such as Illinois are as quiet as tombs these days. Some workers fear they may be laid off (perhaps Obama’s Son of Stimulus plan will “save” their jobs even though there is no work to do).

China’s spreading wealth is changing diets in that country. For example, more people are eating pork regularly. To increase pork production, Chinese growers are using the Western technique of feeding hogs corn. In addition, the need for sweeteners for soft drinks, for starch, and for alcohol adds to China’s demand for corn. Ironically, Some U.S. producers of chickens, livestock, and ethanol are now mixing wheat with corn as feed because it costs less. Corn prices have nearly doubled over the last year. 

For years, China was self-sufficient in corn production, but no longer, and its appetite for U.S. corn shows no signs of dropping off. In July it ordered 21 million bushels and another 2.2.million in August. This is more than the U.S. Department of Agriculture had expected China to buy in an entire year. 

The U.S. exports approximately 1.8 billion bushels of corn a year. Japan, at 610 million bushels, has been our biggest customer; however, some experts expect China to surpass it within a few years. 

Given China’s concerns about food price inflation (which could lead to political instability), Beijing’s government is very likely to keep up its corn-buying pace in order to keep domestic prices in check.

As for soybeans, China already buys about 25 percent of our annual production.

While subsidies for these crops may become more-or-less permanently a thing of the past, the USDA still shovels out large sums for other subsidies, such as crop insurance and payments to farmers for keeping erosion-vulnerable land planted in grass. The good news is that federal farm subsidies for 2011 are predicted to decline to $10.6 billion, less than half the 2005 figure of $24.4 billion.

Thus, we have a two-fer. China’s growing corn purchases help balance the cost of Americans’ appetite for Chinese-made gadgets, and our federal bill for farm subsidies is finally on a sharp downward curve. Next, let’s see if the climate might be right to get rid of subsidies for that useless, wasteful fuel: ethanol.

 

About the Author

Peter Hannaford was closely associated for a number of years with the late President Reagan, beginning in the California Governor’s office. His latest book is Presidential Retreats.

Letter to the Editor View all comments (41) |

Moe Blotz| 9.21.11 @ 6:53AM

Bio-diesel subsidies have to go as well.

Dan Hirsch| 9.21.11 @ 10:28AM

Anything "green," anything!

DTOM

Michael Tomlinson| 9.21.11 @ 7:04AM

The market works and Moe is right.

Red at Heart| 9.21.11 @ 7:09AM

It's interesting that Obama is threatening to cut about half the farm subsidies. Can we assume that the half that gets cut will be farmers that are registered Republicans? What a great campaign tool---re-register with the Democrat Party, vote Obama in 2012 or you'll lose that nice check.

In what other profession or industry does the govt. help pick up the tab for insurance? Teachers, doctors, pharmacists, day care providers, etc., all must carry liability insurance and the federal govt. doesn't (and shouldn't) pay the premiums. Farming is a risk operation. Weather can ruin your crop in minutes. Insurance is necessary to stay in business in case of a disaster, but why does the govt. pay the premium? Probably for the same reason the federal govt. pays homeowner's insurance for people living along coasts where hurricanes are prevelant.

Grain prices are at least doubled in recent years and land values have skyrocketed in the cornbelt. With prime corn and soybean land valued at well over $8000 per acre (in some areas its selling for closer to $10000) the bottom line of many farmers has improved to such a degree that the rest of the nation should not have to continue guaranteeing them a certain income through subsidies. Now, on to ethanol subsidies........

TrueBlue| 9.21.11 @ 4:16PM

The best part is, since the land value has skyrocketed the state governments get to tax them higher property taxes, thus driving out even more farmers that don't apply for, or receive, federal subsidies. many of them can't pay the increased taxes, so the state gets to confiscate it and do with it what they want.

Flatulus Ancien| 9.21.11 @ 8:29AM

Ethanol requires as much energy to produce as is realized from the fuel. Added to gasoline, ethanol reduces the MPG , therefore requiring more fuel to go a mile. Ethanol produces a lot of CO2 when it burns. (This is becoming more obviously NOT the cause of global warming.)
What is the advantage to using ethanol as a motor fuel? It helps the corn growers, and increases food prices. It increases the cost of raising beef, pork, and chicken.
Ethanol is a loser.
Corn as a healthy food is becoming suspect due to the increased planting of Genetically Modified Organisms. Genetically modified corn and soybeans are not imported by Japan and other countries, because their testing shows that they have a deleterious effect on animals fed these grains. In the U.S., testing was not done by independent testers, but only by Monsanto, the producer of these GMO's. Do you really think Monsanto would find anything wrong with their product?

Al Co Hal| 9.21.11 @ 10:41AM

Ethanol Plant are not usually big contributors of CO2 emissions. The CO2 produced in the process comes from CO2 that was already in the air last summer. The boilers and the dryers are the only things that use fossil fuels. The arguement that ethanol uses more energy than what is produced is because they factor in the energy used to grow the corn. The corn is going to be grown regardless. Ask any farmer what he was growing in Iowa before the ethanol boom. It was corn and soybeans...whats he growing now?... corn and soybeans. Efficient ethanol plants can produce a gallon of ethanol (75000 Btu's) for less than 30000 Btu's of purchased energy. Try and educate yourself.

John Navratil| 9.21.11 @ 11:32AM

Al Co Hal,

"The corn is going to be grown regardless. Ask any farmer what he was growing in Iowa before the ethanol boom."

I don't know any farmer who grows anything for the hell of it. Ask any farmer in Mississippi what they were growing just a few years ago and hear cotton and beans. They switched to corn because of the subsidized market, driving bean prices to record highs.

If it's such a good deal it wouldn't need the subsidy. Even accepting your 2-for-1 yield in energy for corn ethanol, the implication is that half the corn grown for ethanol is a production loss. This is not a very efficient trade-off unless you really need the product.

It appears you aren't considering the big picture.

Al Co Hal| 9.21.11 @ 11:40AM

Notice how many ethanol plants are in Mississippi...Mississippi is not even one of the top 8 corn producing states. What does a farmer in Missisippi have to do with the amount of corn grown in this country. I doubt Miss farmers even produce 1% of the nations corn crop. What world do you live in where something is produced for nothing? I dont know what the energy balance is for gasoline or natural gas but I doubt its better than 80%.

John Navratil| 9.21.11 @ 12:34PM

Al Co Hal,

Mississippi is not a major corn producer, but corn production is the fastest growing sector of crop production in the state. Why? Precisely what the farmer in Mississippi has to do with corn production in the U.S. is that Mississippi is a state in the U.S. and it produces corn. Not a difficult conclusion to achieve.

I do not live in a world where something is product for nothing, but I suspect you knew that.

According to the USDA (See: http://www.transportation.anl.gov/pdfs/AF/265.pdf) the Net Energy Value of ethanol is 1.34 : 1. You but in 100 BTUs and get 134 out.

There is a discussion of the topic of Gasoline v. ETOH energy balance at http://www.transportation.anl.gov/pdfs/AF/265.pdf which indicates about a 1:5 for gasoline.

Patrick| 9.21.11 @ 3:28PM

CO2 is released during the primary phase of converting the sugars into ethanol.

Now, I don't believe in AGW, and I certainly have no problem with ethanol - that is so long as it is in a bottle or a glass, not my gas tank.

Ethanol added to gasoline allows the absorption of water into the fuel tank and lines, it corrodes fuel injectors if it doesn't clog them first, it burns hot, it fouls spark plugs, and it offs the timing of gasoline powered vehicles. There is nothing good about ethanol based fuel.

Mind you, the technology exists that can convert corn into gasoline, more efficiently I may add, than the method of converting it into ethanol. This of course will never get through government, because gasoline is evil. Just ask Obama fundraisers from BP.

Mike Hawk| 9.21.11 @ 3:30PM

Easier and cheaper to pump it out of holes in the ground.

Fairbanks99| 9.21.11 @ 3:40PM

Pure, non ethanol corrupted gasoline can found at various stations around the country. www.pure-gas.org lists them by state.

For those of you who don't have access to these stations, or are just beginnning your use of ethanol free gas, there is an awesome product (it really works!) to remove the water from your fuel. It is called "Startron" and can be found in the boating section of Walmart, and in many marine supply stores. It is an enzyme that causes the water to blend evenly with the fuel, permitting it to be removed from the tank by just driving the car. When your tank is empty, the water is gone.

(I do not have any financial relationship to the company that makes this product - I am just a very satisfied user)

Timothy L. Pennell| 9.21.11 @ 8:42AM

Where do I go, to get MY subsidy.
Does anyone have a problem with this? I thought we had a 14th Amendment? I thought we ALL got treated the same? Equal Protection Under The Law.
Subsidies. Bailouts. WAIVERS, to those with FRIENDS in High Places.
I don't like it.

Mike Hawk| 9.21.11 @ 9:46AM

Drop the damned subsidies to Ethanol plants too. They will soon go the way of Solyndra anyway.

Al Co Hal| 9.21.11 @ 10:27AM

Dry grind corn ethanol plants do not get government subsidies anymore. The $0.45 per gallon blender credit goes to the companies that blend alcohol with gasoline...basically the refineries. I have worked in the ethanol industry for years. Our plant produces one gallon of ethanol for about 30,000 Btu's there are approximately 75,000 Btu's in a gallon of ethanol. I think we should end the blend credit subsidy as well as the import tariff. That way people can quit complaining about it. Right now you can buy a gallon of ethanol cheaper than a gallon of blendstock (gasoline). It has been this way for quite some time. Ethanol uses approximately 1/2 of this nations corn crop. If you get rid of ethanol the price of corn will drop and we will see a farm crisis that would make the 80's farm crisis seem like a walk in the park. Subsidies would soar again. People commenting should take some time to educate themselves before making fools of themselves.

Dan Hirsch| 9.21.11 @ 10:35AM

Al,

Doesn't matter who "gets" the subsidy whether it's the producer or purchaser. The 0.45 gets added to the price - so you may not get a check, but you do get the 45 cents...which does come from somebody else's profits...

Another subsidy that has got to go!

Actually they all do!

DTOM

Al Co Hal| 9.21.11 @ 10:44AM

No we dont get the "check" the price we sell for is controlled by the CBOT. I advise taking an econ 101 course. The .45 is not added into the price at all. This is a commodity business. We are price takers not price makers. The .45 comes out of the consumers pockets. Doing away with this subsidy will not have any effect on the production of ethanol at all. Try to educate yourself.

Dan Hirsch| 9.21.11 @ 11:22AM

Al,

So you lose money on every gallon?

You will find when you go take an Econ 101 course that the book is full of Keynesianisms. That is what is taught in most colleges and universities these days.

I studied my economics where they invented the Black-Scholes future pricing model. My degree was not of the undergraduate variety. Thank you.

Don't know what the Black-Scholes model is? And you live in a commodities futures world. You can call me stupid, but I don't try to make a living doing something whose fundamentals I am ignorant of. What would you call that, sir?

And what is your basis for saying,

"Doing away with this subsidy will not have any effect on the production of ethanol at all."

How can it not? If it does not, ten why is the subsidy there in the first place?

When you took Econ 100, did they use the Samuelson book?

Al Co Hal| 9.21.11 @ 11:29AM

At times yes we are producing at a loss...that is the nature of commodity businesses. The subsidy was a gimme to the refiners for forcing them to blend ethanol. Yes I learned about Black-Scholes as well. I dont remember what book I had in economics. I have run 2 ethanol plants as well as a farm. Perhaps you just need more practical experience...educate yourself

Dan Hirsch| 9.21.11 @ 11:37AM

Al,

My point was that subsidies always distort market-pricing.

Whether it's corn, rental housing, health care, anything. We get too much of whatever is subsidized. And sadly, the recipients of those subsidies are often misled into a non-sustainable, in the long term, position of being excess capacity.

Look at the effect of low cost mortgages on housing prices...

Subsidies are like way too much beer, eventually you sober up and half to pick up the pieces. It would have been far better to have had just one and gone home...

Don't tread on me...

DH

Al Co Hal| 9.21.11 @ 11:33AM

I didnt call you stupid...I impored you to educate yourself. There is a big difference.

Dan Hirsch| 9.21.11 @ 11:41AM

No you didn't. Then you made another good point, thank you for reminding me.

Cheers, fellow American,

DH

Red at Heart| 9.22.11 @ 6:01AM

Yes, if we got rid of or at least reduced ethanol, we'd also take those 5 out of 10 ears of corn and put them back into food and we wouldn't be heading quite so fast to a worldwide food shortage. Yes, some farmers would go under like in the '80's. I'm a 6th generation farmer and saw lots of guys lose everything back then but they also had stretched themselves too far. They mortgaged land and equipment beyond their means. Whenever that happens, it catches up at some point, whether a govt. or an individual. It makes no sense to burn food for fuel when we have plenty of energy beneath the earth's crust to keep the world moving until the brainiacs like Solyndra figure out how to use sun and wind to do a better job.

Al Co Hal| 9.21.11 @ 10:34AM

You can get subsidies too...just become a farmer. Its likely you do not have skills and knowlege to run a fever let alone a low margin risky operation like a farm. Everyone is constantly saluting the troops for the good job they do. Yet everyone complains about the job American farmers do...and they complain about them with their mouths stuffed full of cheap food. If its so bad get off your ass and grow your own food. At least the liberals are usually willing to pay up for organic local food.

Dan Hirsch| 9.21.11 @ 10:52AM

Al,

I don't like subsidies, period. They distort the market - we end up with products that no one wants at their inflated cost. Remember the government stockpiling wheat, corn, milk, cheese because they couldn't sell it...that is what was going on then.

It's not about farmers or steel producers, it's about taking money out of one of my pockets through taxes, putting it in the producers' pockets, and then pretending to give it back to me through lower prices-all without me ever seeing it happen. Subsidized, artificially high prices do just that. Ever had your pocket picked? Did you know it when it happened or did you figure it out later?

That is exactly what subsidies do. Consider this, what if subsidies were suddenly cut. Lot of producers (not just farmers, any producers) would cut back their production. Then prices naturally rise. Maybe not as high as they were, but they will go up. You might find yourself making the same profit on three-fourths the production you used to require...

It's not about being mean or selfish, it's about fundamental, immutable, non-legislatable economic laws. Blast away at how unfair they are, as you will. But when they work to your benefit, I hope you'll blast away at that, too.

Show us what you are made of, Al.
DTOM

Al Co Hal| 9.21.11 @ 11:31AM

I agree, do away with subsidies. I dont think they help one way or another to be honest. Farmers do not cut back on production. The typical response to lower prices in agriculture is to produce more to lower the cost of production per unit.

Dan Hirsch| 9.21.11 @ 11:45AM

You seem to be made of good stuff, sir.

And I don't know the ropes of the ag game. My plan is leave it to the experts.

Did you hear the joke about the USDA agent who came back to his cubicle to find his co-worker sobbing uncontrollably. He tried to find out what the problem was, and after much consolation and comfort, the sobbing agent finally blurted out:

"My farmer died!"

Yea, come to think of it, you probably did.

DTOM

Al Co Hal| 9.21.11 @ 12:21PM

LOL you know why farmers squeeze the bills of their caps so that the bill is rounded instead of flat? It makes it easier when peering into their mailbox looking their subsidy check :)

POST American| 9.21.11 @ 9:44AM

-----Our sources inform us that virtually
ALLLLL corn and corn products on sale in the big
supermarkets is now Monsanto GMO.

Further, GMO crops, esp. corn, have been
connected to, not only organ failure,
diabetes, cancer and inter-generational
sterilization, but the disappearance of the bees.

When one considers the psychopaths of the
capstone, and their view of we, the ITs, as
worker bees in the hive (---"Bee-hive yourself
now") ----and their fondness for in your face
clues of what's in store----UH ----TAKE HEED.

Angus Macaupy| 9.21.11 @ 9:47AM

Why are you concerned. You aren't a carbon based life form.

mbd| 9.21.11 @ 10:05AM

"The U.S. exports approximately 1.8 bushels of corn a year." Perhaps there is a missing 'billion' in the term?

Dan Hirsch| 9.21.11 @ 10:53AM

Nah, things have been really slow...

canuckistani| 9.21.11 @ 10:17AM

The ethanol bamboozling goes far deeper into the pockets of lobbyists and senators. It will require true tenacity and inner strength to rid us of that scourge. Food and feed corn is exposed as obvious since it is simple consumption rather than a series of mysterious algorithms that imbue the price of corn used for ethanol - and enable megafarm operations to claim poverty.

Most food and feed growers would prefer to have zero subsidies at all if a stable consumption market exists. Managing overheads, surplus acreage and the typical ups and downs of growth cycles become easier when a reliable customer base exists.
Growers, shippers, processors and the ubiquitious oil industry are all involved in the ethanol circus with trillions in potential winfall profits over the next 50 years..

JimG3| 9.21.11 @ 10:47AM

Over this last year many have been worried about a Chinese carrier killing missle, as if the first strike is all that is necessary to win a war. But this article brings a new wrinkle to the equation, mainly a slowly starving Chinese population due to a cut off of imported food stuffs. Interesting!

Dan Hirsch| 9.21.11 @ 11:25AM

Be careful what you wish for! Hungry people fight really hard...until they starve. And this country is not known for vengeful conflict resolution - we'd just give it to them...or they'd take it.

JimG3| 9.23.11 @ 9:14AM

Dan I'm sure not wishing for the death of a couple of our carriers, but to take it they'll have to get here. Now nukes add another whole aspect to this equation, but at that point game over, both sides dead.

Warren | 9.21.11 @ 10:51AM

Now if we can just rid ourselves of the ethanol racket, corn prices can once again fall to where they *should* be

Pecos Pete| 9.21.11 @ 2:37PM

Regardless of the economics of farming and subsidies and all the work lobbyists do for thee and me, ethanol-mixed gasoline is harmful to most internal combustion engines. Same old story, follow the money. Let the free enterprise system work without subsidies and then we'll know which crops are truly profitable.

Purple Lips| 9.21.11 @ 3:02PM

The Chicoms have bought a lot of corn and beans. But, they haven't yet taken ownership of thier futures. As a matter of fact, many of the Chicom purchases have been through Hedge Funds. It seems to me, that many in Asia are hedging thier bets on the dollar. Perhaps the Chinese will in fact buy all of that corn. I'm thinking, based on yeild estimates, that corn and bean prices will continue to go up until such a time that global demand (or lack of it) will cause corn and bean prices to plunge. There's quite a bit of speculation out there (a weak dollar tends to do that).

And speaking of demand, beef prices in recent weeks (and months) have been bearish. Some blame the weather (rain on the East Coast; droughts and heatwaves elsewhere). But, I think the lingering recession in the private sector is finally dampening demand. Commodities like corn and beans may take longer to feel this slackening for demand. The Chicoms depend on US imports for thier cash flow. Reduce that cash-flow and Asia catches a cold.

POST American| 9.21.11 @ 11:54PM

--------------------BOTTOM LINE----------------------

-Freemasons have infiltrated and NOW control
your churches.

EUGENISTS (also largely high degree Masons)
control and direct our entire medical establishment.

USURERS (ALSO virtually to a man Masons)
are directing ----and BETRAYING, our economy.

GMO Monsanto, and others, are saturating our
food chain with deadly GMO diddled produce.

Jeffrey I-Melt--down of GE dances the world
TAX FREE building dirty plants ----while those
6 GE Mox reactors MASSIVELY hemmorage
radiation across the northern hemisphere.

-----------TAKE HEED!

-----------------TAKE HEED!

-------------FUKISHIMA and GMO!-------------------

---------------------------TAKE HEED!

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