We just paid $2.25 more for a bag of horse feed than we did a month ago – a jump of over 25%. We weren’t happy about, but we only have three horses, so we’ll find a way to work it into the household budget. What was hard to watch was the dairy farmer who had come to make his regular weekly purchase of 200 bags of feed for his cows. He simply didn’t have the extra $450. Over the course of a month that means another $2,000 to him. It isn’t in his budget, and he had to tell the men at the loading dock to remove some of the bags. He said that he was going home to talk to his wife about how they were going to deal with their herd. He has only two real options – sell some of his cows or slaughter them. He can’t make ends meet selling milk if feeding his cows will eat up every bit of his profit and more. He’s not the only farmer making hard decisions. It’s happening all across the country.
I think it took that scene at the supply store to make this Summer’s weather conditions a reality for me. There just isn’t going to be enough corn – not for us, not for livestock or poultry and not for fuel – not unless we do something about it. In the last couple of months the price of a bushel of corn has risen over 60% from $5.51 per bushel to today’s price which is hovering around $8.40. Take a look at the agricultural commodities market and you’ll see that soybeans have risen from $10.95 to $17.34 and that wheat is up to $9.42 from $5.78. Given the very basic and simple rules of supply and demand, this means that all of us are going to have to take a long hard look at our checkbooks. We’re going to have to find ways to pinch those pennies a little tighter while we shop for food and fill our gas tanks. The crops for 2012 are yielding approximately 15-20% less than in previous years and they can’t be recovered. You can’t make something grow without a little help from Mother Nature, and the growing season is quickly coming to an end.
Climatologists are reporting that this is the first of many signs that global warming is a real threat to our planet. That may very well be, but it isn’t just the severe drought conditions that are driving those prices. Government regulations require that 40% of corn crops be converted into biofuel, forcing farmers to devote less and less land to growing other crops. Market speculators, seeing huge investor profits, have nearly tripled their trading in agricultural commodities, and that was only between June and July. Profit driven motives, in the world of trading, can skew everything and throw the supply and demand model right out the window. Fears over war between Israel and Iran, along with the ongoing fighting in Syria, have forced some of their neighbors in the Middle East to stockpile both food and oil supplies. China and Japan are facing their own fears and are responding by releasing some of their own grain reserves, impacting the normal flow of global exports and imports. It has all the makings of the perfect storm for a world that is already skittish about the economic situation.
Here in the United States, there has been some talk by members of Congress about easing up on those ethanol regulations. The United Nations’ Food and Agriculture Organization has appealed for the suspension of the EPA requirements. It’s a sort of food-or-fuel debate. The problem is that it probably won’t happen until 2013, and that’s being optimistic. The ethanol and fuel oil producers have already set the wheels in motion for business as usual. To change their operations will take time. The debate in Washington, like almost everything else there, is sharply divided and being argued in the two different languages of partisan politics, something that even a translator can’t help. We also have to take into account that we’re in an election cycle, and few candidates are willing to take on any challenge that could very well mean a loss of campaign contributions. Groups with very diverse interests – from the National Cattlemen’s Association to the Corn Grower’s Association to myriad environmental organizations – have been whispering in the ears of lawmakers and writing checks to ensure that they can be heard.
Should those in power decide to enter into some real discussions and make actual changes to the ethanol issue, there is a very good chance that the situation could improve. Economists and experts in both the fields of energy and agriculture have offered some suggestions as to how different scenarios could work. Each variation shows what type of impact there would be given how much or how little the EPA standards are relaxed. The other variables, according to an article presented by Purdue University, would be “the price of oil, the price of corn, the magnitude of the drought, the economics of switching away from ethanol and the technical flexibility of refiners and blenders.”* Even a compromise, from all involved, would be better than just doing nothing. These are actual ways in which the further harm to the environment would be limited, while also allowing for Americans to buy groceries and drive to work. In the meantime, while they’re either arguing or ignoring the problem, we’ll be waiting and prices will keep going up. We might have to tighten our belts another notch, but that won’t be hard, because we’ll probably be eating less and walking more.
* “Potential Impacts of a Partial Waiver of the Ethanol Blending Rules”; Jay Akridge, Dean of Agriculture for Purdue University and Neil Conklin, President of the Farm Foundation, NFP; August 16, 2012
References – Business Week, Bloomberg Report, CNNMoney, The Chicago Tribune, and the Agricultural Marketing Research Center