The commercial corn business, says Sheila Bair of the FDIC, seems to be inflating another one of those hot air market bubbles (my words, not hers). If it bursts, it will leave the financial landscape of the cornbelt looking as forlorn as a field of dead cornstalks. As Otto Doering, a farm economist at Purdue says about the situation in Farm and Dairy newspaper on Nov 11: “We are now at the bottom of the hole and there is nothing that the Republicans or Democrats can do at this point to dig us out quickly. We’re in a hole that we’ve been digging ourselves into for at least 20 years.”
But the farm press blithely says that farmers are having a great year. The price of corn was up to nearly six dollars a bushel last week. A hard- working thief could make $30 an hour stealing corn out of the field at that price. Land to grow corn on (not to mention soybeans and wheat whose markets are also going crazy) is being bid up to $6000 -$8000 an acre while the prices of fertilizer, seed and chemicals are double-digiting upward just as fast. If there is anything rational about this market, food prices, especially meat, must go up significantly. I sure don’t want to be a representative of the people when Americans have to start paying double what they do now for a steak.
Then, last Friday, Nov. 12, corn prices fell the limit. The doomsayers said the long-awaited price plunge was finally under way. This week the price is pogo-sticking up and down all over the floor of the Chicago Board of Trade, mystifying traders themselves and totally bewildering onlookers like myself. What in the world is going on here?
I’ll tell you my crazy corn theories if you will tell me yours. First of all, I think that the situation is similar to the housing market a couple of years ago. Low interest rates encouraged people to buy houses they couldn’t afford and the same thing is happening in the farm equipment and farm land markets. Secondly Asians are learning that they like meat just as much as we do, but how can anybody afford to buy corn to make meat when it is six dollars a bushel even before it gets shipped half way around the world? Thirdly, pension funders, insurance companies, and some billionaires are speculating in the grain market because it looks like a better deal than the stock market. Fourthly, and most importantly, top notch, large-scale farmers think they can hang in there no matter what, not only because of the above reasons but because they have a golden parachute safety net. They are heavily subsidized. The government, as Doering (above) points out, in 1996 shifted from cyclical subsidy payments to direct payments. Instead of paying farmers subsidies on crops when prices were deemed too low to be profitable, Uncle now pays qualifying farmers a subsidy whether market prices are high or low. Then in 2000, Congress re-introduced cyclical payments, calling them counter-cyclical, whatever that means, but left direct payments in place! Even the chairman of the House Agricultural Committee, Colin Peterson, says that’s a mistake and wants to drop direct payments. Fat chance.
Corn is the most wonderful food plant ever developed which is why we start depending on it too much, as the Mayan and the mound-building Mississippian civilizations both did before they collapsed. Corn makes a succulent vegetable on or off the cob, makes cornmeal, hoecake, cornbread, cornpone, mush, batter, popcorn, parched corn and hominy. Now it’s a major source of sugar— high fructose corn syrup. More importantly, corn is the principle animal feed to make meat, milk, cream, cheese and butter. Last but not least, corn makes great beer and whiskey.
So are we happy with our miracle food? No. We had to overdo it. We decided on the ultimate insanity: to feed our cars, trucks, and airplanes with it too. This doesn’t distill out on a large, industrial scale as we are learning the hard way. Ethanol plants are declaring bankruptcy right and left. We will need our land for food, not fuel. Recognizing that fact, a consortium of food industry associations has just petitioned Congress to disallow the recent legislation that permits sales of gasoline containing 15% ethanol instead of the 10% now in effect. Corn is for feeding people, not cars.
We literally live in a corn economy and money speculators are pricing it out of the marketplace. We will either pay a whole lot more to eat or a whole bunch of investors in farm land and grain markets will be wearing empty beer barrels to work instead of suits and ties.