Friday, December 5, 2008

Farm Related News and Comments

First, an apology to all who come here and have found nothing new lately. I seem to have numerous things which have interfered with my blogging. Now that harvest is officially over and all the hog manure has been hauled to the fields, I should have more time in the evenings to post something.

Second, I have also struggled a little with what topics I should post about. This is my blog, I may post or say some things which those of you who know me may find controversial or just plain wrong. Feel free to disagree, you're welcome to comment about what you find objectionable, but I'm going to say what I think. So, in the coming weeks I intent to tackle some subjects which may be less than politically correct.

Tonight I want to talk about some current events in the ag community and their effect on you and on me.

The December corn futures reached an all time high this summer, with corn contracts reaching $7.99 1/4 per bushel in the last few days of June. Since corn has become a source of energy with the increase production of ethanol, the two charts are almost parallel in their upward and then their downward trends.

With the recent fall in oil prices, as well as in corn prices, suddenly the hue and cry over the high cost of food caused by the high corn prices seems to have completely disappeared. Since this hubbub was a foolish argument before, it is clear for all to see now. A box of corn flakes still costs the same at the supermarket, but the value of the corn used in those corn flakes has gone from 7 cents a bowl to 3 cents a bowl. The high price of food was never really attributable to the high price of the food ingredients nearly as much as it was the high cost of energy, any type of energy.

The following is a newspaper article on the subject By David Kruse author and producer of the CommStock Report. CommStock Report

Read Commentary by David Kruse as it is published weekly in newspapers around the Midwest.

Food Prices

The Grocery Manufacturers of America (GMA) attempted to use higher corn prices, which they blamed on ethanol, as a diversion to give them an excuse to raise food prices. The facts are not on their side. Food only comprises 19% of the food dollar and only a very small portion of that is corn related. Blaming higher food prices on corn and ethanol as the GMA has done to explain food price hikes is like claiming that the tail wags the dog.

Higher energy prices have had significantly more impact on food prices than the cost of the raw food ingredients. Ethanol had more impact lowering the cost of motor fuel then it did raising food costs. When Texas Governor, Rick Perry asked the EPA to roll back the RFS, the subsequent EPA study conducted showed ethanol raised feed prices costing Texas livestock producers $1.8 billion but saved Texas motorists $4 billion, for a net savings.

While complaining about higher corn costs, lashing out at ethanol, many food companies reported larger profits. In other words, they raised prices more than food and energy costs went up, profiteering from the rising prices using price hikes blamed on higher costs to gouge consumers, widening margins.

The Iowa Corn Grower's reported, "Citing the (recent) decline in corn prices, Iowa Senator Charles Grassley has asked the Grocery Manufactures of America (GMA) when its members will reduce food prices and challenged GMA for continuing to make ethanol a scapegoat for high food prices. Congressman Collin Petersen, Chair of the House Agriculture Committee, has also called on GMA members to reduce prices and apologize to farmers for its anti-ethanol smear campaign. A GMA response maintained that ethanol production is the largest factor increasing corn prices."

Ethanol was a factor raising corn prices among many other factors. No one would argue with that. We would argue that the GMA members enjoyed the benefits of below the cost of production corn prices for many years, low prices sustained by government subsidies and like spoiled children losing a privilege, reacted like cry babies when the price of corn became profitable to farmers like that was something unfair.

The price of corn is now back down below the cost of production again, so the GMA can stop shedding those crocodile tears. With the profit they have been making, they can afford silk handkerchiefs. Sen. Chuck Grassley challenged the GMA directly on what he called a smear campaign, distorting the impact of corn prices and ethanol on food prices. In a letter to the GMA, Grassley wrote, "Since the smear campaign was launched last spring, I've been calling for intellectual honesty regarding ethanol and its role in the economy. Recent changes in the market confirm that many factors contributed to higher food prices during the last year. Yet as recently as October 6, 2008, Scott Faber of your organization was quoted by the Desert News as saying, 'The food manufacturers are high-volume, low margin companies that have initially absorbed a lot of the costs of higher commodities prices.'"

Food companies used higher corn prices as cover to gouge consumers with large price hikes. They now have the luxury of seeing raw food prices fall so they can trail food product prices lower while maintaining fat margins. These guys are very good liars who got where they are at by knowing how to game the system.

Senator Grassley added "In fact, when oil prices and commodity prices rose earlier this year, food processors and grocery stores reflected their higher input costs almost immediately, passing them onto consumer's. However, since commodity prices have declined over the past three months, we have seen retail food prices continue to rise."

While there were other factors than the impact that ethanol had on corn prices and many factors more powerful as to why corn prices went up than ethanol, the GMA focused on ethanol as the cause of food prices rising. That's a gross distortion of facts and so irresponsible the ethanol industry was compelled, like Senator Grassley, to respond.

The ethanol industry and other ag groups formed a coalition called Growth Energy to launch an ad campaign challenging the GMA's claim that ethanol raising corn prices, pushed them hard to raise food prices.

It's becoming the battle of ad agencies as, "The Glover Park Group, the Washington consulting firm that has been managing the anti-ethanol campaign for GMA and other organizations, called Growth Energy a splinter group, that seeks to perpetuate the myth that rising food prices are a result of a food company conspiracy. According to an October 31st story in the Wall Street Journal, Kraft's revenue increased 19 percent from the year-earlier period. Kraft's net income for the third quarter was $1.4 billion - or 93 cents a share - up from $596 million, or 38 cents, a year earlier."

Like Kraft Foods, Heinz blasted ethanol and corn prices for raising food costs and then boosted its prices enough to increase its profits 22% last quarter, netting $276.7 million. Doesn't that say it all? Food company's profits inflated dramatically, despite the higher corn costs so they have a lot of cash available to be able to afford anti-ethanol campaigns to cover their tracks.
They tell everybody how they have to raise food prices because of ethanol, but look at their profits soar.


Now, I have argued before that I would much rather see corn used to produce food. But, with the increased efficiency of the ethanol industry and the growing use of the by-products left from ethanol production, (Dried Distillers Grains) it is a fact of life that corn is going to be used to produce some of our energy needs in the future. The current spot market price for ethanol is $1.39 per gallon. If I read the chart right, Reformulated Gasoline is .90 cents. Of course thats before the government takes their cut in the form of taxes.

The result of the sagging economy, falling commodity prices and market uncertainty makes for interesting days in the ag world. Land prices had been on a decade long climb with record prices recorded in the last 10 months. Now corn and bean prices are such that land purchases will no longer cash flow using current land prices. There have been several "no sales" of land at auction in the last month. Land owners saw record high prices and wanted to sell, farmers were in the mood to buy when corn was over $7.00 dollars a bushel, now corn prices are below cost of production, and they can not afford to pay record high prices for land.

And a related matter, ethanol company declares bankruptcy

One of the most irritating things about this Verasun fiasco is the fact that the bankruptcy court may allow Verasun to renege on all of the contracts that they wrote which are no longer profitable for them. In other words, some farmers sold corn to Verasun at $7.00 dollars per bushel, a tremendous profit for the farmer. Now with corn back below $4.00 dollars per bushel those farmers have contracts to deliver grain to Verasun, but Verasun does not have to pay the $7.00 dollars per bushel. However Verasun will honor the contracts written two years ago in which farmer contracted corn at $3.00 per bushel. That will sure cure your financial ills in a hurry, if you can pick and choose to honor only those contracts which will help your bottom line.

Want to buy into the ethanol business at rock bottom prices, there are numerous ethanol plants for sale at fire sale prices? There is also a brand new never been used bio-diesel plant for sale, built with farmer money, which is currently on the market, and now soybean prices are back to levels where bio-diesel production is again profitable.

In other news the cow herd continues to shrink,

see this article, shrinking cattle profits , so a smart guy, in a normal economy, would be buying cows and feeding cattle.

But, the vegans are out to stop that as well,

From the AP wire,

Proposed fee on smelly cows, hogs angers farmers

By BOB JOHNSON, Associated Press Writer Bob Johnson, Associated Press Writer – Fri Dec 5, 4:43 am ET
These Montgomery, Ala., cows seem unaware of a proposal Thursday, Dec. 4, 2008 AP – These Montgomery, Ala., cows seem unaware of a proposal Thursday, Dec. 4, 2008 by the Environmental …

MONTGOMERY, Ala. – For farmers, this stinks: Belching and gaseous cows and hogs could start costing them money if a federal proposal to charge fees for air-polluting animals becomes law.

Farmers so far are turning their noses up at the notion, which is one of several put forward by the Environmental Protection Agency after the U.S. Supreme Court ruled in 2007 that greenhouse gases emitted by belching and flatulence amounts to air pollution.

"This is one of the most ridiculous things the federal government has tried to do," said Alabama Agriculture Commissioner Ron Sparks, an outspoken opponent of the proposal.

It would require farms or ranches with more than 25 dairy cows, 50 beef cattle or 200 hogs to pay an annual fee of about $175 for each dairy cow, $87.50 per head of beef cattle and $20 for each hog.

The executive vice president of the Wyoming Farm Bureau Federation, Ken Hamilton, estimated the fee would cost owners of a modest-sized cattle ranch $30,000 to $40,000 a year. He said he has talked to a number of livestock owners about the proposals, and "all have said if the fees were carried out, it would bankrupt them."

Sparks said Wednesday he's worried the fee could be extended to chickens and other farm animals and cause more meat to be imported.

"We'll let other countries put food on our tables like they are putting gas in our cars. Other countries don't have the health standards we have," Sparks said.

EPA spokesman Nick Butterfield said the fee was proposed for farms with livestock operations that emit more than 100 tons of carbon emissions in a year and fall under federal Clean Air Act provisions.

Butterfield said the EPA has not taken a position on any of the proposals. But farmers from across the country have expressed outrage over the idea, both on Internet sites and in opinions sent to EPA during a public comment period that ended last week.

"It's something that really has a very big potential adverse impact for the livestock industry," said Rick Krause, the senior director of congressional relations for the American Farm Bureau Federation.

The fee would cover the cost of a permit for the livestock operations. While farmers say it would drive them out of business, an organization supporting the proposal hopes it forces the farms and ranches to switch to healthier crops.

"It makes perfect sense if you are looking for ways to cut down on meat consumption and recoup environmental losses," said Bruce Friedrich, a spokesman in Washington for People for the Ethical Treatment of Animals.

"We certainly support making factory farms pay their fair share," he said.

U.S. Rep. Robert Aderholt, a Republican from Haleyville in northwest Alabama, said he has spoken with EPA officials and doesn't believe the cow tax is a serious proposal that will ever be adopted by the agency.

"Who comes up with this kind of stuff?" said Perry Mobley, director of the Alabama Farmers Federation's beef division. "It seems there is an ulterior motive, to destroy livestock farms. This would certainly put them out of business."

Butterfield said the EPA is reviewing the public comments and didn't have a timetable for the next steps.

In summary, production agriculture faces interesting times ahead. What is it about me that wants so badly to be in the game when everything looks so unsettled? It must be something in my blood.