maybe some sanity

[Fransisco]

This is true and most of our exports go to the US but one has to look at it in the whole North American context.

And if our dollar were to depreciate against the US one I don't think ours would do so in isolation. I think we would see everybody else's dollar doing the same thing. Meat would then become more expensive and they would likely buy less.

If our dollar could somehow drop in comparison to the US without the rest of the world experiencing the same thing we'd be in business. But I don't think that's realistic.

[charliep]

Agree.

To the original posting. I note the original posting was mostly a political one.

Perhaps the politians and others are missing all the investment in biofuel research and where the world is going (not where we are today). If $125/barrel oil is long term reality, what consumer behavior/business changes will occur? In a world of $100/tonne plus/minus ocean freight rates, will the major exporters of grain operate in exactly the same way? Will high crop prices around the world (not just North America and Europe) stimulate production (all farmers regardless of how small/big react to profit)? Maybe encouraging food self sufficiency in countries is a good thing for world food security?

[charliep]

some quotes I found elsewhere some quite interesting!

Critics are ‘flat out wrong’
U.S. Secretary of Agriculture Ed Schafer:
Secretary Schafer said only about 25 percent of the corn crop goes to make ethanol and that the forces driving rising prices in corn and other commodities has more to do with energy costs, increased consumption around the world and weather-related production problems.
Critics who blame high food prices on US policies they claim encourage corn to be diverted from food and livestock feed to alternative fuels are "flat out wrong," said Schafer.


Emphasis needs to be on oil-exporting nations
Thai Prime Minister Samak Sundaravej:
Prime Minister Samak “lashed out at the World Bank and the United Nations for criticising biofuel producing nations for soaring food prices while sparing oil exporters.”
“Let me ask the World Bank whether they used to ask oil exporting countries before pointing their fingers and blaming us that we have to use rice fields to grow biofuel crops,” Samak told reporters.
“They have unreasonably continued to inflate oil prices even though the oil supply is not running out yet,” he added.


Livestock gobbling up grain supply
German Environment Minister Sigmar Gabriel:
Gabriel downplayed their role in raising food prices, saying demand for animal feed was more relevant.
"There are other factors crucial for rising food prices.
"The big competition is not between the use of biomass for energy and food but between feed and food," he said.
Ethanol not the primary reason for higher food prices


Brent Searle, Special Assistant to the Director of the Oregon Department of Agriculture:
Whatever else one may criticize about corn ethanol, or biofuels in general, they are not the primary cause of recent food price increases.
Consider the fact that growers planted 24 percent more corn in 2007, which more than supplied all the corn that went into ethanol for the year.
One could, therefore, totally remove corn ethanol from the equation and most of the present food price issues still would be present because there are many more factors at play with food prices here and abroad.


Biofuel debate shows ‘gross misunderstanding’ about food markets
Potash Corp. CEO Bill Doyle (Potash is the world’s largest fertilizer company):
“I think that ethanol is the most popular whipping boy in the agricultural world at the moment,” Doyle told analysts on a conference call on Thursday.
Doyle, who has talked about declining world grain stocks for years, noted 95 percent of the world's grain crop this year will be used for food.
“So to say that biofuels are the culprit clearly underestimates the demand and really shows a gross misunderstanding of the world food situation,” Doyle said.

Erik

[mcfarms]

Ethanol's just a easy whipping post.




Understanding World Food-Fuel Crisis
Published: May. 12, 2008

Source: Peter Goldsmith (217) 244-1706




URBANA - Symptoms of the food-versus-fuel crisis are appearing regularly in the news but the underlying causes--and long-term implications--are poorly understood, said a University of Illinois agricultural economics professor.

"An important component of the food-versus-fuel debate that is not well understood is how increases in wealth for Asian consumers are dramatically affecting the markets for commodities worldwide," said Peter Goldsmith, director of the National Soybean Research Laboratory and an associate professor in the U of I's Department of Agricultural and Consumer Economics.

To help fill that knowledge gap, Goldsmith, Tad Masuda, a postdoctoral researcher, and Barbara Mirel of the University of Michigan have built a 3-D computer model that visually conveys the interrelationship and impacts of income changes around the world on consumption, production, and markets.

"Global Food in 3-D--Version 2" is a Web-based program that will be accessible on a trial basis worldwide to analysts and other interested parties by June.

"It will put the story of food demand at everyone's fingertips," Goldsmith said.

The program deploys three interactive features on the screen--a sidewall, a back wall, and a floor.

On the "side wall," users can graphically display consumption and production data for 15 protein commodities. These can be displayed by country, region, or for the world.

"In the global food system, the production and consumption of commodities are increasingly separate," Goldsmith said. "For example, poultry and pork trade has increased 14 percent to 16 percent per year since 2000, respectively. Brazil is now the largest exporter with Russia and China being the leading importers. The shift in the loci of world poultry and pork production will have larger impacts on underlying feed markets and grain flows."

The "back wall" features country-specific information such as consumption per capita, income elasticities, and population metrics. These data help to demonstrate how income affects consumption.

"The relationship is simple--if I get $1 more in income, I'll not only eat more. If I get significantly more income, I'll eat even more but will shift my consumption to different types of food," he said. "We have that data for every country in the world going back to 1961 and projecting up to 2030."



As a component of the food-versus-fuel debate, there is an economic principle known as "elasticity." Simply defined, this means as incomes move up, food consumption and expenditures change. This is why small increases in income in heavily populated nations like India and China can have major impacts on commodity markets, especially those tied to protein.

"The visualization provided by this program helps one understand this relationship. It provides a vivid demonstration of how the complex system involving income growth, population changes, and food consumption functions," he said.

The "floor" of the model is a map of the world which dynamically reflects changing consumption or production patterns and elasticities over time.

As meat and poultry consumption rises in Asia with increased incomes, a greater demand is triggered for corn and soybeans to feed beef, pork, and poultry. Holding all factors constant, projections indicate that 120 million metric tons more of pork and poultry will be needed by 2030. This means 110 million metric tons more of soybean meal, 140 million metric tons of soybeans, and 62 million hectares of land to grow these additional crops.

"Not only can we not add land fast enough to meet this rapid rise in demand, but it would place a significant burden on our natural resources," he said. "So how do you produce more soybeans?

"I think the answer lies in more research and technical change. Improvements in yield, technologies to reduce input use, and increases in livestock feed efficiency will be critical to meeting future demand while improving the productivity of agricultural inputs and reducing the load on environmental resources."

The Global Food in 3-D model can be used to demonstrate and understand how demand has changed for commodities and where production has been and is going. Poultry, for example, was a commodity largely consumed during the 1960s in the Caribbean, North America, and Europe. By 2007, new countries in other areas of the world were becoming major consumers and a radically different pattern emerged.

"In terms of consumption, poultry was until the 1990s largely a U.S. business," said Goldsmith. "After that, Brazil and China have become major players. China now consumes more poultry than the United States and is projected to consume 40 percent more poultry than the United States by 2030. Where will the grain to feed this poultry come from? This demand is placing a tremendous stress on crop production even without using crops for fuel."

The model allows users to make comparisons. What are the effects on markets when incomes are rising in Asia and what are the implications for the future?

"We also know that as incomes rise, consumers change their food choices. They go first from rice to meat and then in some countries move to high-end seafood," he said. "Other commodities stay basically flat in some countries. In the United States, for example, dairy consumption doesn't seem to change while the big opportunities for dairy appear to be in South America. But each country, at each point in time, for each foodstuff can be unique and makes generalizations risky. Hence, we felt there was a need for a software tool that employed visualization to help simplify a complex situation."

Asia can't produce the food needed to feed its population, Goldsmith added. "That food will have to come from the western hemisphere. China, once the home of the soybean, is now the world's largest importer of soybeans."

All of these complex and interrelated developments become clearer when moving across the screen with its tables and maps.

Goldsmith noted that the original idea for the model was developed earlier this decade by Steven Sonka, a former director of NSRL and retired professor of agricultural economics, and his then-doctoral student Donna Fisher. They studied how visualization helped managers make better decisions when dealing with complex problems in the future. The Illinois Soybean Association and the Soybean Disease and Biotechnology Center provided support for development of the software.

-30-

[boarderbloke]

so much discussion you hear on the radio leaves the impression(particularly to those not in agriculture), that when corn or grains are used to make ethanol, all that is left at the end of the process is ethanol! and somehow the grain used has either evaporated or has been pushed into a great big pit and buried! it is never talked about, that the mash is fed to livestock, actually displacing corn grain which would have been fed to the livestock otherwise! in reality, making ethanol from grain allows two uses(dynamically different), from a ag resource, produced by farmers.

[TOM4CWB]

maybe some sanity?

NOT A CHANCE!

The same folks who brought us 'global warming'... are behind this move as well!

AS always... there is a portion of truth behind what they are saying... but the reality is only part of the picture they paint.

Livestock eating feed grains; are much more a cause of overall grain consumption increases... that will be the next shoe to be dropped... as evil?

[Fransisco]

Well then if you folks believe the increase in corn prices has nothing to do with ethanol then you should have no problem with eliminating the subsidies and mandates.

[Fransisco]

Preliminary thoughts on the RFA’s PR campaign

Posted by Marlo Lewis

As most ethanol watchers know, the Renewable Fuels Association ran a full-page ad in The Hill magazine last week (May 6, 2008) titled: “Without ethanol, we’d be paying over $4.00 a gallon for gasoline today.” To substantiate this claim, the ad quotes from a March 24, 2008 column by Wall Street Journal reporter Patrick Barta:

“Without biofuels, which can be refined to produce fuels like the ones made from petroleum, oil prices would be even higher. Merrill Lynch commodity strategist Francisco Blanch says that oil and gasoline prices would be about 15% higher if biofuel producers weren’t increasing their output.”

What to make of this? Some preliminary thoughts.

(1) If Blanch’s analysis is correct, then proponents of the ethanol mandate, the 51-cent per gallon blenders tax credit, the 54-cent per gallon tariff, and other forms of policy privilege can no longer claim that ethanol “displaces” petroleum in the nation’s fuel supply. Rather, ethanol adds to the total stock of motor fuel. It is by increasing total liquid fuel supply relative to global demand that ethanol, in Blanch’s analysis, reduces crude oil and gasoline prices.

If correct, this is also an argument for opening the Alaska National Wildlife Refuge (ANWR) and the Outer Continental Shelves to oil production. Increased oil production should also increase supply relative to demand, lowering oil and gasoline prices.

(2) Blanch’s estimate, as far as I can determine, is not part of a formal or published study. It may merely be one analyst’s back-of-the-envelope. I find it troubling that RFA and others are making political hay out of an estimate based on assumptions, methods, and data that the RFA has not shared with the public, may not have evaluated, and may not even be privy to.

(3) The WSJ article says that global oil demand rose by 900,000 barrels per day (bpd) last year, and biofuel production rose by 300,000 bpd. We may surmise, therefore, that Blanch, assuming a particular elasticity of demand, estimated what would happen if biofuel production had not increased.

That is a reasonable thought experiment, but it tacitly assumes an “other things being equal” universe. Yes, if demand grows by 900,000 bpd and biofuels don’t grow by 300,000 bpd, then – other things being equal – the price impact might be exactly as Blanch estimates. But usually other things are not equal.

For example, the same WSJ article says that OPEC’s output “declined by about 400,000 barrels per day, according to the IEA [International Energy Agency].” How do we know that if biofuel production had been lower, OPEC output would not have been higher? If OPEC is truly the cunning cartel some commentators claim it is, then OPEC adjusts its production decisions in light of what other actors, including biofuel makers, plan to do. If OPEC’s 400,000 bpd cutback was a strategic decision, designed to prop up oil prices despite planned increases in other liquid fuels, then it wiped out any price reduction from the lesser, 300,000 bpd increase in biofuels.

For years, environmentalists have opposed opening ANWR to oil production on the grounds that its output would be just “a drop in the bucket,” the price-reducing effects of which OPEC could easily negate just by cutting back production. The same critique applies with equal merit (or the lack thereof) to ethanol.

(4) Blanch’s 15% estimate is questionable in light of recent changes in oil prices. He estimated in late March that without the increase in biofuels, oil would be $115 a barrel instead of $102. However, some six weeks later, oil hit $120 a barrel. Between those dates there was no drop in biofuel production. So it is not obvious that, in March, biofuels were responsible for the price of oil being $102 instead of $115.

(5) As you’d expect, RFA ignores the many ways in which ethanol increases the price of gasoline. These include the increased costs to store and ship ethanol, the increased cost to refine gasoline mixed with ethanol to counteract ethanol’s volatility and the associated hydrocarbon emissions, and the fuel economy penalty resulting from the fact that ethanol has one-third less energy content by volume than gasoline. To what extent Blanch’s estimate takes these factors into account is unknown at this point.

In closing, let me make clear that I mean no criticism of Blanch. Making estimates is what economists do. But I am troubled by the facile conclusions that the RFA and others are drawing from his estimate. They may have no idea what assumptions it is based on. They very likely have never considered whether the estimate takes into account potential strategic behavior by OPEC, or whether it is reasonable to give ethanol credit for lowering oil by $13 a barrel in March when oil prices were $18 a barrel higher in May.

[charliep]

Will leave the bigger picture ethanol discussion alone. Always an interesting question if there were no ethanol subsidies, would there be an industry? Having said that, subsidies have always been a part of US agriculture. That might raise the question is there were no US farm program, would corn productivity be where it is today? If there were no US/EU subsidies that increased their production/drove prices down, would other regions have improved their productivity more quickly based on market signals?

Other interesting thing is that ethanol will have to take a page from the livestock industry. The meat business finds value in every component of a pig including the squeel if they knew how to capture. Have seen a presentation on barley/ethanol and a major part of the model is to find full value from the barley seed start with identifying higher valued products like nutricuticals/breaking them out. From there, the issue will be to find full value from the plant. It will be a different of thinking about things starting with the varieties farmers grow (high starch/low protein, components aimed at nutricutical market, etc).

[Fransisco]

And I know that the hog industry in the US receives no direct subsidies.

Yes they got the benefit from the cheap corn because of corn subsidies but then again so did/does ethanol.