POLITICS AS USUAL
Corn is trading limit up in the Chicago pits today, and will likely trade limit up on Monday, CNBC announces this morning. If you hadn't noticed, we've been in a bull market for corn, wheat, soy beans and other agricultural commodities. Despite recent highs, these trends are expected to continue for several years, as several financial firms have recently projected.
And it's not just about increased, secular global demand from rapidly industrialized countries like China and India.
It's also about our current politicized mania for growing green via increased use of corn-based Ethanol biofuels. Turbo-charged of course by a highly charged election season that has both parties trying to outdo each other in their courting and wooing of farmers in places like Iowa.
Increased diversion of our farmlands to more production of corn for ethanol is already baked into the "Energy Independence and Security Act" signed into law a week ago by President Bush after strong support by both parties in both Houses of Congress. And don't you love how they name these things?
Which is why Mayor Bloomberg's comments on all this a few days ago stood out in sharp contrast to what we heard from most of our politicians, as this New York Observor story highlights:
"The mayor, asked about the subject during a Q&A near the South Street Ferry Terminal this morning, said the increased production will make food more expensive in America and have “world wide implications” on the overall supply of food.
“The part of the bill that, uh, requires using more ethanol was an outrage,” Bloomberg said. “That is going to drive up the cost of food for everybody in this country and have world-wide implications on the food supply. The bottom line is you cannot keep growing corn for ethanol and have reasonably priced food in our country. Farmers are already walking away from planting wheat and soybeans and other things to go over and plant corn because they’ll be able to sell this corn to be used in ethanol plants.
There is no evidence whatsoever that the ethanol that is made is fuel efficient or anything else. It’s just, it’s a farm bill rather than an energy bill and I’m not even sure it’s good farm policy. Most of the farm things that we do don’t benefit most farmers. They just benefit ten percent of the more industrial-sized farms. And the small farmers who we really should be helping in this country, who needs a lot of help isn’t sharing in that. So it’s bad energy policy and probably bad agricultural policy.”
We use corn based ethanol here compared to sugar-based Ethanol in places like Brazil, which is often cited as a good example of how the ethanol thing can be done. But of course importing sugar-based Ethanol is penalized under our current tariffing policies. And it makes for perfectly practical politics, regardless of fundamentally negative all this ends up being for our economy longer-term.