U.S. Senator John Cornyn has graciously provided the guest posting below.
Hello Panhandle Poet readers…it’s a privilege to guest post here.
I wanted to touch base with you regarding an issue which is very pressing in the Panhandle, ethanol.
When first introduced to the marketplace, it was hoped that ethanol would help revitalize rural America, lower the price we pay at the pump and reduce our dependence on foreign oil.
That’s a worthy goal, yet the government’s focus on ethanol has produced a problem. There have been unintended adverse consequences to our economy from the focus on ethanol production. Chiefly, since February of 2006 the combined price of corn, wheat and soybeans has increased more than 416 percent.
For this reason and many more, I co-sponsored legislation which was introduced recently to freeze the renewable fuel standard corn-based ethanol mandate at current 2008 levels.
In the panhandle, like other places, the effect of ethanol production has been mixed. While a few have benefitted from it, a great many others have suffered.
As more and more farmers grow corn for ethanol production, cattle feeding ration prices have shot sky high. Mandates, along with the high cost of fuel, are squeezing every bit of profit out of cattle feedlots today.
As consumers continue to see rising food and fuel prices, freezing the corn-based ethanol mandate will allow us to re-evaluate the consequences of using food for fuel and determine the best way forward. Texas will remain a leader as we work to diversify our nation’s energy supply to include alternative and renewable sources, but in the meantime Congress must exercise its oversight role to ensure there are no further unintended consequences. A freeze of the mandate will allow time for necessary assessments and reduce increasing grocery, grain and feed prices.
Last year, the Energy Independence and Security Act (EISA) provided the Environmental Protection Agency (EPA) the authority to waive the mandates, or adjust them as necessary to provide relief for consumers.
Last month, I joined Sen. Hutchison and others in sending a letter to EPA Administrator requesting an update on the pending rule-making process for the waiver of all or portions of the ethanol mandate passed by Congress in 2007. The letter also urged the EPA to consider the sharp rise in food prices as they review the mandate.
Freezing the mandate at its current level for one year is not a long term solution, but it is a good start towards finding one.
My heartfelt thanks go to the Senator for addressing this issue and for providing this post.
Also posted on:
Panhandle's Perspective
Common Sense Agriculture, Conservation and Energy
Showing posts with label corn. Show all posts
Showing posts with label corn. Show all posts
Saturday, May 31, 2008
Thursday, April 10, 2008
New Competition for Beef
While traveling in Kansas this past week I had the opportunity to meet with several cattlemen and feedlot managers. The mood among them is somber to say the least. The market doesn’t seem to be adjusting to the realities of the new energy economy very quickly.
Transportation cost is one of the biggest factors impacting every industry across the country -- especially livestock feeding. When trucking companies are dealing with diesel prices in the neighborhood of $4.00/gallon, the cost of moving grain or animals or boxed beef becomes significant. If calves are being shipped from the Southeast to feedlots in the Plains, the cost of transportation must be figured into the price of those calves. The same issue affects corn – if it can be purchased at all.
On the other end of the supply chain we have the consumer. When gasoline prices are at record levels, groceries is one area where household costs are cut. We should be looking at ways to drive less or improve fuel efficiency but instead, we cut back on spending for higher priced food items such as beef. We don’t give up our gas guzzling habits very easily.
The result is that packing plants are looking at cold storage filled with boxes of unsold beef; the feedlots are looking at cattle that need to go to market but the packing plants aren’t willing to give them a price at which the feeder can make any money; cattle feeders are unwilling to buy calves to put on feed – and on and on. It all is driven by fuel in one form or another.
What is driving the fuel prices? I am amazed that our Congressional leaders in all of their wisdom feel compelled to bring the heads of multiple oil companies to Washington to berate them over the cost of fuel. Of course, most of the Congressmen and Senators don’t have much training in economics. In fact, I think they must be trained in anti-economics – or at least anti-free enterprise. Most of the laws coming out of Washington seem to hinder business rather than help. The cost of every regulation and every hair-brained pork-barrel scheme gets passed on to the consumer in some form or fashion. Sometimes it is a direct tax but more often than not, it as an indirect tax created through regulatory action on business.
It is the growing economies in India and China, domestic regulations concerning fuel additives, mandatory targets for bio-fuels, market uncertainty due to political unrest, burdensome regulation on building new refineries and infrastructure, the high cost of building refineries, environmental regulations, closure of certain areas to oil exploration, the devaluation of the dollar, and all of the other global factors that impact the energy business that are driving fuel prices. Why do we think we can solve the problem by making ethanol from corn? Oh, and did I mention the booming economies of India and China? A few hundred million individuals with the most disposable income at their finger tips that has been seen in those countries ever – want to spend it on some of the finer things in life – like automobiles and meat.
Our consumer spending habits are enabling those countries to build thriving economies that produce goods that must be transported to the U.S. by ships burning diesel. I’m happy their economies are growing. We just have to realize that we are paying for that growth.
The current ethanol mandates drive up the price of corn. That’s really all they do for our energy situation. Has the price of gasoline come down? The high price of corn was good for corn farmers – last year. The cost of farm inputs has now normalized (adjusted) due to the higher fuel costs and the margins for farmers will be much slimmer this year. Their business is extremely fuel intensive. Their input costs – such as for fertilizer and diesel – have gone through the roof.
The mandates are hurting cattle producers. They are suppressing demand for beef because now – put this in your pipe and smoke it – beef is competing against energy. The consumer dollar will choose energy over beef because of the need to heat and cool our homes and drive to and from work. In the past, beef competed with pork and poultry. Now it must also compete with energy because the primary cattle feed ingredient is being converted to fuel.
Isn’t it great what misguided regulations do for you?
Transportation cost is one of the biggest factors impacting every industry across the country -- especially livestock feeding. When trucking companies are dealing with diesel prices in the neighborhood of $4.00/gallon, the cost of moving grain or animals or boxed beef becomes significant. If calves are being shipped from the Southeast to feedlots in the Plains, the cost of transportation must be figured into the price of those calves. The same issue affects corn – if it can be purchased at all.
On the other end of the supply chain we have the consumer. When gasoline prices are at record levels, groceries is one area where household costs are cut. We should be looking at ways to drive less or improve fuel efficiency but instead, we cut back on spending for higher priced food items such as beef. We don’t give up our gas guzzling habits very easily.
The result is that packing plants are looking at cold storage filled with boxes of unsold beef; the feedlots are looking at cattle that need to go to market but the packing plants aren’t willing to give them a price at which the feeder can make any money; cattle feeders are unwilling to buy calves to put on feed – and on and on. It all is driven by fuel in one form or another.
What is driving the fuel prices? I am amazed that our Congressional leaders in all of their wisdom feel compelled to bring the heads of multiple oil companies to Washington to berate them over the cost of fuel. Of course, most of the Congressmen and Senators don’t have much training in economics. In fact, I think they must be trained in anti-economics – or at least anti-free enterprise. Most of the laws coming out of Washington seem to hinder business rather than help. The cost of every regulation and every hair-brained pork-barrel scheme gets passed on to the consumer in some form or fashion. Sometimes it is a direct tax but more often than not, it as an indirect tax created through regulatory action on business.
It is the growing economies in India and China, domestic regulations concerning fuel additives, mandatory targets for bio-fuels, market uncertainty due to political unrest, burdensome regulation on building new refineries and infrastructure, the high cost of building refineries, environmental regulations, closure of certain areas to oil exploration, the devaluation of the dollar, and all of the other global factors that impact the energy business that are driving fuel prices. Why do we think we can solve the problem by making ethanol from corn? Oh, and did I mention the booming economies of India and China? A few hundred million individuals with the most disposable income at their finger tips that has been seen in those countries ever – want to spend it on some of the finer things in life – like automobiles and meat.
Our consumer spending habits are enabling those countries to build thriving economies that produce goods that must be transported to the U.S. by ships burning diesel. I’m happy their economies are growing. We just have to realize that we are paying for that growth.
The current ethanol mandates drive up the price of corn. That’s really all they do for our energy situation. Has the price of gasoline come down? The high price of corn was good for corn farmers – last year. The cost of farm inputs has now normalized (adjusted) due to the higher fuel costs and the margins for farmers will be much slimmer this year. Their business is extremely fuel intensive. Their input costs – such as for fertilizer and diesel – have gone through the roof.
The mandates are hurting cattle producers. They are suppressing demand for beef because now – put this in your pipe and smoke it – beef is competing against energy. The consumer dollar will choose energy over beef because of the need to heat and cool our homes and drive to and from work. In the past, beef competed with pork and poultry. Now it must also compete with energy because the primary cattle feed ingredient is being converted to fuel.
Isn’t it great what misguided regulations do for you?
Tuesday, June 12, 2007
Energy vs. Food
This is a glimpse of the future...
China blocks food for biofuel
By George Reynolds
12/06/2007 - Chinese biofuel producers should only use non-food crops, the government said yesterday, following fears of shortages and further price rises that could occur as demand for greener energy increases.Biofuels are seen as a potential alternative to fossil fuels, because they can be manufactured from sustainable crops including corn, wheat, sugar, cassava, sweet sorghum, and oilseeds.The moratorium will ease manufacturing concerns about competing for ingredients being used to make ethanol and biodiesel. Corn is currently accounts for 90 per cent of the inputs in Chinese ethanol manufacture, and has sharply risen in price over the past few years due to subsidies and high crude oil prices.Moreover, last year's 43 per cent rise in the price of pork, China's principal meat, due to increasing feed costs, has pushed officials to act."Food-based ethanol fuel will not be the direction for China," said Xu Dingming, an official of the National Energy Leading Group, at a energy seminar held this week, according to the Xinhua News Agency.Biofuel manufacturers will now need to source non-food crops, such as cassava and sweet sorghum used ....(follow the link for complete article)
______________________________________
Ethanol and biodiesel will have a dramatic impact on food prices in this country over the next few years. I have posted some of my thoughts on this in the past. Fuel independence may create food dependence if we continue to focus those efforts on biofuels. Are we as a country willing to become dependent on South America for our grains? That may not be an issue if Brazil continues with its efforts to produce ethanol. We are heading for a global food crisis. U.S. citizens will pay a higher percentage of their disposable income for food than ever in the history of this country. What will the impact be on countries that suffer from chronic food shortages today?
There have been numerous issues to criticize the current administration and Congress over. I think the subsidies to encourage biofuels may be the biggest one. The money spent subsidizing ethanol would be better spent on nuclear, wind, or solar power generation. Biofuel money should be restricted to garbage and human waste. Subsidizing the use of crops for biofuels is an error in judgment that will have huge impact on our food supplies in a very short time. That impact is in fact already occurring although there is a significant lag before it will be felt in the consumer marketplace. The sad thing is, it will not lower gasoline prices and may contribute to their rise due to legislating blends both at the Federal and State levels. This, at the same time that it is raising food prices.
The first impact that will be felt is in the cost of proteins. This includes all meats and beans. The impact to grain-based foods will be more slowly realized. This seems backward at first glance. However, due to the small impact of "in-the-field" prices for grains on the cost of a finished loaf of bread, the impact will be minimal in spite of significant grain price increases. However, the cost of feeding livestock has increased tremendously based on the speculative impact of corn conversion to ethanol. There has also been secondary impact on the price of feed fat which is a rendered energy source similar to lard that is a component of many animal feeds -- such as pet foods. This is because of the utilization of tallow for biodiesel production. Just get ready. The price of your hamburger is about to double. It will only take about 6 -9 months for the initial impact to begin to filter through the production cycle.
The potential impact of significantly higher food prices could quickly spread to the housing market. Families will have less disposable income. Foreclosures may become as common as they were in the 80's at the height of the S&L crisis. Prices will plummet. The housing bubble will burst. The impact will then ripple through the financial sectors potentially causing bank failures.
OK. I guess that's a bit of a gloom-and-doom view, but it is also realistic. Cheap and abundant food has been a significant component of the economic success of this country. Current alternative energy policies are threatening our future food supply. Congress and the President need to think again about how we achieve energy independence.
China blocks food for biofuel
By George Reynolds
12/06/2007 - Chinese biofuel producers should only use non-food crops, the government said yesterday, following fears of shortages and further price rises that could occur as demand for greener energy increases.Biofuels are seen as a potential alternative to fossil fuels, because they can be manufactured from sustainable crops including corn, wheat, sugar, cassava, sweet sorghum, and oilseeds.The moratorium will ease manufacturing concerns about competing for ingredients being used to make ethanol and biodiesel. Corn is currently accounts for 90 per cent of the inputs in Chinese ethanol manufacture, and has sharply risen in price over the past few years due to subsidies and high crude oil prices.Moreover, last year's 43 per cent rise in the price of pork, China's principal meat, due to increasing feed costs, has pushed officials to act."Food-based ethanol fuel will not be the direction for China," said Xu Dingming, an official of the National Energy Leading Group, at a energy seminar held this week, according to the Xinhua News Agency.Biofuel manufacturers will now need to source non-food crops, such as cassava and sweet sorghum used ....(follow the link for complete article)
______________________________________
Ethanol and biodiesel will have a dramatic impact on food prices in this country over the next few years. I have posted some of my thoughts on this in the past. Fuel independence may create food dependence if we continue to focus those efforts on biofuels. Are we as a country willing to become dependent on South America for our grains? That may not be an issue if Brazil continues with its efforts to produce ethanol. We are heading for a global food crisis. U.S. citizens will pay a higher percentage of their disposable income for food than ever in the history of this country. What will the impact be on countries that suffer from chronic food shortages today?
There have been numerous issues to criticize the current administration and Congress over. I think the subsidies to encourage biofuels may be the biggest one. The money spent subsidizing ethanol would be better spent on nuclear, wind, or solar power generation. Biofuel money should be restricted to garbage and human waste. Subsidizing the use of crops for biofuels is an error in judgment that will have huge impact on our food supplies in a very short time. That impact is in fact already occurring although there is a significant lag before it will be felt in the consumer marketplace. The sad thing is, it will not lower gasoline prices and may contribute to their rise due to legislating blends both at the Federal and State levels. This, at the same time that it is raising food prices.
The first impact that will be felt is in the cost of proteins. This includes all meats and beans. The impact to grain-based foods will be more slowly realized. This seems backward at first glance. However, due to the small impact of "in-the-field" prices for grains on the cost of a finished loaf of bread, the impact will be minimal in spite of significant grain price increases. However, the cost of feeding livestock has increased tremendously based on the speculative impact of corn conversion to ethanol. There has also been secondary impact on the price of feed fat which is a rendered energy source similar to lard that is a component of many animal feeds -- such as pet foods. This is because of the utilization of tallow for biodiesel production. Just get ready. The price of your hamburger is about to double. It will only take about 6 -9 months for the initial impact to begin to filter through the production cycle.
The potential impact of significantly higher food prices could quickly spread to the housing market. Families will have less disposable income. Foreclosures may become as common as they were in the 80's at the height of the S&L crisis. Prices will plummet. The housing bubble will burst. The impact will then ripple through the financial sectors potentially causing bank failures.
OK. I guess that's a bit of a gloom-and-doom view, but it is also realistic. Cheap and abundant food has been a significant component of the economic success of this country. Current alternative energy policies are threatening our future food supply. Congress and the President need to think again about how we achieve energy independence.
Friday, April 20, 2007
More on Ethanol
This article from CattleNetwork.com is interesting (at least to those of us who seem to be obsessed with Ethanol)....
The Efficiency of Ethanol Production
The efficiency of ethanol productionhas long been questioned. Critics would argue that the industry could not survive without government subsidies and that it takes more energy to produce a unit of ethanol than the energy derived from the ethanol. There might have been some merit to these arguments, given the technology that existed at the time, both in terms of agronomic practices and the processes for turning feedstocks into fuel ethanol.
However, a study published in July 2006 by the University of Minnesota concluded that there is a net energy gain with the production of ethanol from corn. Researchers tracked the amount of energy used to grow corn and to turn it into ethanol, and they factored in the cost of transporting the raw product to the plant.
Researchers also factored in the cost of how much fertilizer and pesticides were required to grow the corn, and the greenhouse gases, nitrogen, phosphorus, and pesticide pollutants that were released into the environment. They concluded that corn-based ethanol yielded 25% more energy than was expended in producing that unit of ethanol.
The cost of producing ethanol varies with the feedstock being used and its availability. In the U.S. and Canada, corn is the most widely used feedstock because it is generally the cheapest, both in terms of the cost of feedstock and the processing costs. In Brazil, sugar cane is the most cost effective feedstock, despite the relatively low ethanol conversion factor. The low cost of sugar cane and the associated processing costs make Brazil’s ethanol producers very competitive in the world ethanol market.
Processing costs, for corn-based ethanol production, depend on the type of milling process. For very large plants, the economics of production favour the wet milling process, despite a lower conversion rate than the dry milling process and higher processing costs per gallon.
The value of by-products derived from wet milling more than offsets the lower conversion rate and higher processing costs, resulting in the lower cost per gallon of ethanol. The by-products of the wet milling process are normally corn oil, corn gluten meal, corn gluten feed, and carbon dioxide, but some larger plants have developed the ability to also produce vitamins, food and feed additives from the same feedstock, by-products which help to reduce the cost per gallon of ethanol.
Dry milling accounts for most of the ethanol produced in the U.S., and the main by-products of this process are distillers dried grain with soluble (DDGS), condensed syrup, and carbon dioxide. DDGS is a high-protein feed ingredient, but it is low in amino acids, including lysine.
The low levels of lysine limit the usefulness of DDGS in hog and poultry rations. However, the abundance of DDGS in the U.S Midwest, where ethanol plants are concentrated, allows nutritionists to incorporate this relatively low cost feed ingredient into feed rations, provided that the customers for the DDGS are within a certain radius of the ethanol plants.
Currently, the U.S. ethanol industry appears to be less dependent on government subsidies than in the past. That move to self-sufficiency can be attributed to several factors, including record high prices for crude oil. High crude oil prices and the market price of ethanol have made its production much more profitable. In fact, ethanol production might be profitable enough to allow producers to operate without the US$0.50/gal subsidy they currently receive from the U.S. government.
_________________________________________
Obviously the profitability of ethanol is dependent on the relative price of gasoline. The subsidy for production probably is just an offset against reduced farm subsidy payments due to increased corn prices in the market so it isn't a real loss to the taxpayer, however, I'd like to see our "all wise and powerful government" end this subsidy for ethanol and let the market take its course.
The Efficiency of Ethanol Production
The efficiency of ethanol productionhas long been questioned. Critics would argue that the industry could not survive without government subsidies and that it takes more energy to produce a unit of ethanol than the energy derived from the ethanol. There might have been some merit to these arguments, given the technology that existed at the time, both in terms of agronomic practices and the processes for turning feedstocks into fuel ethanol.
However, a study published in July 2006 by the University of Minnesota concluded that there is a net energy gain with the production of ethanol from corn. Researchers tracked the amount of energy used to grow corn and to turn it into ethanol, and they factored in the cost of transporting the raw product to the plant.
Researchers also factored in the cost of how much fertilizer and pesticides were required to grow the corn, and the greenhouse gases, nitrogen, phosphorus, and pesticide pollutants that were released into the environment. They concluded that corn-based ethanol yielded 25% more energy than was expended in producing that unit of ethanol.
The cost of producing ethanol varies with the feedstock being used and its availability. In the U.S. and Canada, corn is the most widely used feedstock because it is generally the cheapest, both in terms of the cost of feedstock and the processing costs. In Brazil, sugar cane is the most cost effective feedstock, despite the relatively low ethanol conversion factor. The low cost of sugar cane and the associated processing costs make Brazil’s ethanol producers very competitive in the world ethanol market.
Processing costs, for corn-based ethanol production, depend on the type of milling process. For very large plants, the economics of production favour the wet milling process, despite a lower conversion rate than the dry milling process and higher processing costs per gallon.
The value of by-products derived from wet milling more than offsets the lower conversion rate and higher processing costs, resulting in the lower cost per gallon of ethanol. The by-products of the wet milling process are normally corn oil, corn gluten meal, corn gluten feed, and carbon dioxide, but some larger plants have developed the ability to also produce vitamins, food and feed additives from the same feedstock, by-products which help to reduce the cost per gallon of ethanol.
Dry milling accounts for most of the ethanol produced in the U.S., and the main by-products of this process are distillers dried grain with soluble (DDGS), condensed syrup, and carbon dioxide. DDGS is a high-protein feed ingredient, but it is low in amino acids, including lysine.
The low levels of lysine limit the usefulness of DDGS in hog and poultry rations. However, the abundance of DDGS in the U.S Midwest, where ethanol plants are concentrated, allows nutritionists to incorporate this relatively low cost feed ingredient into feed rations, provided that the customers for the DDGS are within a certain radius of the ethanol plants.
Currently, the U.S. ethanol industry appears to be less dependent on government subsidies than in the past. That move to self-sufficiency can be attributed to several factors, including record high prices for crude oil. High crude oil prices and the market price of ethanol have made its production much more profitable. In fact, ethanol production might be profitable enough to allow producers to operate without the US$0.50/gal subsidy they currently receive from the U.S. government.
_________________________________________
Obviously the profitability of ethanol is dependent on the relative price of gasoline. The subsidy for production probably is just an offset against reduced farm subsidy payments due to increased corn prices in the market so it isn't a real loss to the taxpayer, however, I'd like to see our "all wise and powerful government" end this subsidy for ethanol and let the market take its course.
Wednesday, April 4, 2007
Market Psychology
This evening I was visiting with a friend of mine who is a commodities buyer for a very large feed company. He commented about how crazy the market was today. So, I asked him what he was talking about. He said, "corn futures jumped 16 cents on the news that it froze in Missouri. The crazy thing is, they haven't even planted corn in Missouri yet! What could it freeze out?"
The futures market is a very psychologically driven market. It has happened numerous times with cattle futures based on rumors of BSE or some other disease being found. It makes no logical sense to someone in the cattle business. It shows the influence of speculative traders that buy and sell based on psychological factors, not on reality.
The same thing happens in the stock market. Stocks that are totally unrelated to newsworthy events about a business, or industry, are often impacted as much or more than stocks that should directly be effected by a particular news item. It makes sense when the stock of a chip maker falls because its biggest customer is struggling with sales. It doesn't make sense when the entire lending industry is impacted adversely by news that a particular sub-prime lender is heading toward bankruptcy.
It is the individual who understands "mob" psychology that will often do well in the stock market -- at least in the short run. I personally believe that such market gyrations should be ignored and investment should be based on business value, sound management and a strong plan. Time should be taken to understand an industry and the factors that affect it before putting money into it. Gambling based on "gut feeling" is a sure way to lose. That "gut feeling" is often indigestion caused by worrying about an investment that had no real merit in the first place.
Futures markets are a tool for protecting the price of a commodity that one owns, or plans to own in the course of their business. When used properly, they can be a form of insurance against cash price moves based on real-world events. The stock market is a place to invest in well-managed companies that need additional capital to expand. It is a place that requires a long-term view for success. It isn't a place to ride the capricious price swings of a psychologically driven market in the hopes of a windfall. In that environment, only the professionals win.
The markets have always intrigued me. I guess it is part of the same thinking that caused me to major in Agricultural Economics in college. On the micro, or firm level, economics is just a way to evaluate decisions on how to best utilize the resources that you have at hand. On the macro, or system-wide level, economics is frequently heavily influenced by psychological factors. What drives consumer decision making? Are they always rational in their choices? Do businesses always make wise decisions? -- and on and on. The people side of it often creates the greatest uncertainty. Maybe that's why we hear so much about Consumer Confidence Levels and similar measures of people's attitudes about the economy.
I've always enjoyed watching people and puzzling over why they do the things they do. I don't think I'll ever figure it out though. If I did, I'd be wealthy from playing the games in the stock market.
The futures market is a very psychologically driven market. It has happened numerous times with cattle futures based on rumors of BSE or some other disease being found. It makes no logical sense to someone in the cattle business. It shows the influence of speculative traders that buy and sell based on psychological factors, not on reality.
The same thing happens in the stock market. Stocks that are totally unrelated to newsworthy events about a business, or industry, are often impacted as much or more than stocks that should directly be effected by a particular news item. It makes sense when the stock of a chip maker falls because its biggest customer is struggling with sales. It doesn't make sense when the entire lending industry is impacted adversely by news that a particular sub-prime lender is heading toward bankruptcy.
It is the individual who understands "mob" psychology that will often do well in the stock market -- at least in the short run. I personally believe that such market gyrations should be ignored and investment should be based on business value, sound management and a strong plan. Time should be taken to understand an industry and the factors that affect it before putting money into it. Gambling based on "gut feeling" is a sure way to lose. That "gut feeling" is often indigestion caused by worrying about an investment that had no real merit in the first place.
Futures markets are a tool for protecting the price of a commodity that one owns, or plans to own in the course of their business. When used properly, they can be a form of insurance against cash price moves based on real-world events. The stock market is a place to invest in well-managed companies that need additional capital to expand. It is a place that requires a long-term view for success. It isn't a place to ride the capricious price swings of a psychologically driven market in the hopes of a windfall. In that environment, only the professionals win.
The markets have always intrigued me. I guess it is part of the same thinking that caused me to major in Agricultural Economics in college. On the micro, or firm level, economics is just a way to evaluate decisions on how to best utilize the resources that you have at hand. On the macro, or system-wide level, economics is frequently heavily influenced by psychological factors. What drives consumer decision making? Are they always rational in their choices? Do businesses always make wise decisions? -- and on and on. The people side of it often creates the greatest uncertainty. Maybe that's why we hear so much about Consumer Confidence Levels and similar measures of people's attitudes about the economy.
I've always enjoyed watching people and puzzling over why they do the things they do. I don't think I'll ever figure it out though. If I did, I'd be wealthy from playing the games in the stock market.
Monday, April 2, 2007
Global Warming Again
I can't decide what to think about "global warming". I don't trust the media, I don't trust politicians, I don't even trust the so-called scientists. They all have an agenda they are pushing which biases their positions. I think there are certainly observations and measurements of climatological factors that indicate that the earth is in a warming cycle -- at least some areas of the earth. Is the warming man-made, or part of the natural rhythm of the earth's climate?
I had a lot of training in statistics when I was in college. The old adage that "the figures don't lie, but liars can figure" is appropriate to consider, and certainly relevant to the question of climate change. If you have a particular point of view that you believe to be correct, the research that you conduct will be conducted in such a way that you will likely prove your point -- especially in an area that has as many variables as the earth's climate. If you believe that the polar ice caps are melting, you will look until you find evidence that they are melting. If you believe that the earth is warming, you will look until you find evidence of warming -- even if you have to measure the temperature in a thousand locations to do it! All research begins with the biases of the researcher. They cannot be removed from the process. I know that you "scientists" out there will disagree with this, but keep in mind that your disagreement is a bias in itself.
My training is in economics. Economics is a so-called social science. It is the study of the allocation of resources. It uses scientific methods to the extent possible. However, all economic problems are affected by huge numbers of variables. The larger the number of variables, the more inexact the conclusions. The large number of variables is one of the biggest problem with climatology. In economics, quite literally, the price of eggs in China can potentially impact the futures market for corn in the United States. Why? One possible scenario is that a high price for eggs in China could cause a shift in chicken raisers from meat production to egg production. This in turn could create a demand in China for imported chicken. Perhaps the chickens are imported from the U.S. as frozen, boxed chicken. The increased demand for chicken from U.S. suppliers could cause a price rise in chicken meat in the U.S. causing a shift in consumption by U.S. consumers from chicken to beef. In the feedlots of the U.S., corn is one of the primary feed ingredients. Therefore, the quantity of corn demanded would increase and the cash price of corn would increase -- at least temporarily until the farmers responded by planting more corn. The cash price increase would create a speculative increase in the corn futures market. An endless number of other scenarios can be concocted by any good economist that would provide the same or a different answer. It is likely that none of them are completely true.
Now all of that was said for this reason. How many variables affect the weather? Even solar flare activity affects the weather on earth. There is no way that scientists can know with certainty that human activity is causing global warming.
Al Gore has come to the forefront as one of the biggest "fear-mongers" of global warming. He's also making a lot of money in that role. Is he also running for President based on the questionable fears that he is creating in the American public? The general public notoriously follows the media. The media tends to give favorable treatment to the most liberal of ideas. It all just makes me suspicious.
It's time for the American people to take our country back from the vultures. If we don't, they'll soon be picking over our bones.
I had a lot of training in statistics when I was in college. The old adage that "the figures don't lie, but liars can figure" is appropriate to consider, and certainly relevant to the question of climate change. If you have a particular point of view that you believe to be correct, the research that you conduct will be conducted in such a way that you will likely prove your point -- especially in an area that has as many variables as the earth's climate. If you believe that the polar ice caps are melting, you will look until you find evidence that they are melting. If you believe that the earth is warming, you will look until you find evidence of warming -- even if you have to measure the temperature in a thousand locations to do it! All research begins with the biases of the researcher. They cannot be removed from the process. I know that you "scientists" out there will disagree with this, but keep in mind that your disagreement is a bias in itself.
My training is in economics. Economics is a so-called social science. It is the study of the allocation of resources. It uses scientific methods to the extent possible. However, all economic problems are affected by huge numbers of variables. The larger the number of variables, the more inexact the conclusions. The large number of variables is one of the biggest problem with climatology. In economics, quite literally, the price of eggs in China can potentially impact the futures market for corn in the United States. Why? One possible scenario is that a high price for eggs in China could cause a shift in chicken raisers from meat production to egg production. This in turn could create a demand in China for imported chicken. Perhaps the chickens are imported from the U.S. as frozen, boxed chicken. The increased demand for chicken from U.S. suppliers could cause a price rise in chicken meat in the U.S. causing a shift in consumption by U.S. consumers from chicken to beef. In the feedlots of the U.S., corn is one of the primary feed ingredients. Therefore, the quantity of corn demanded would increase and the cash price of corn would increase -- at least temporarily until the farmers responded by planting more corn. The cash price increase would create a speculative increase in the corn futures market. An endless number of other scenarios can be concocted by any good economist that would provide the same or a different answer. It is likely that none of them are completely true.
Now all of that was said for this reason. How many variables affect the weather? Even solar flare activity affects the weather on earth. There is no way that scientists can know with certainty that human activity is causing global warming.
Al Gore has come to the forefront as one of the biggest "fear-mongers" of global warming. He's also making a lot of money in that role. Is he also running for President based on the questionable fears that he is creating in the American public? The general public notoriously follows the media. The media tends to give favorable treatment to the most liberal of ideas. It all just makes me suspicious.
It's time for the American people to take our country back from the vultures. If we don't, they'll soon be picking over our bones.
Tuesday, March 27, 2007
Ethanol -- Why???
The traffic volume on the highways throughout the Panhandle seems to be increasing. That's a good sign. It is a sign of a thriving economy.
I have been seeing a lot of trucks on the highways carrying what appears to be capital equipment and machinery. I have recently seen parts for the giant wind generators, many large storage tanks, motors, fan assemblies, valves, etc. Almost all of the pieces destined to either wind generator fields or to ethanol plants.
I really struggle with the ethanol plants -- especially in corn growing areas that rely on the Ogallala Aquifer for sufficient water to grow the corn. Think for a minute about what it takes to grow corn in the Texas Panhandle where our rainfall is approximately 20 inches per year, or less. The fields are prepared by tractors fueled by diesel, the primary nitrogen fertilizer (anhydrous ammonia) requires huge amounts of natural gas to manufacture, the water is pumped from an aquifer that lies several hundred feet below the surface and therefore requires energy to lift the water. Usually the irrigation pumps are powered by electricity, the bulk of which continues to be generated at plants fueled by natural gas. Once the corn is ready for harvest, the combines that shell it, and the trucks that take it to the ethanol plants are fueled by diesel. I have heard it said that we spend approximately $0.98 worth of fossil fuel to produce $1.00 worth of ethanol. It just doesn't make sense to me.
The one area of benefit that I see, is that the ethanol plants are a source of jobs in many smaller rural communities. I think that's great in the short run, but what will happen in the longer term? Will those jobs still be there in 10 years? Or, will they dry up with the demise of ethanol.
One argument says that this is a transitional time for ethanol. Eventually we will shift to a cellulosic basis for production rather than using corn. I think that's great, but will that reduce the amount of fossil fuel used to produce it? I doubt it.
Another problem with using corn, or any other crop for that matter, for making ethanol is that it is causing a shift in acreage from other crops to corn production. This does several things. 1) It increases the amount of fertilizer used which adds to potential runoff issues. 2) Corn demands a much larger amount of water for production than most other crops raised on the High Plains, further stressing the already significantly depleted water supply. 3) The acreage shift to corn from other crops drives up the price of all crop-based commodities. This may be good in the short-run for the farmers. But, it will eventually be reflected in one of two ways. Either our food and fiber costs will increase at the consumer level, or we will end up purchasing more from other countries.
If our strategy in developing ethanol as an alternative fuel is to decrease our reliance on other countries, it won't work. It will just shift the reliance from a minuscule percentage of our fuel demands to a significant percentage of our food and fiber demands.
Increasing crop prices may have the short-term positive effect of increasing farm income from the marketplace to offset government subsidies. This would be a positive benefit to the taxpayers of the nation if the Congress would just not spend that money on something else. We all know how that will turn out.
Currently there are significant government subsidies to incent the creation of ethanol capacity in our country. Some of the subsidies are direct and some are related to the investment of funds in alternative energy production in lieu of taxing those funds derived from other means. Either way, it is dollars out of the taxpayers pocket. I would much rather see that money spent on projects such as the windmill generators, or geothermal, or nuclear energy. The problem is, ethanol plants seem to generate more votes because of the "pork-barrel" nature of the projects.
It would be nice if Congress would vote for sensible legislation rather than their behavior being totally dictated by what will get them the most votes, or line their pockets the quickest. I think we need to fire them all and start over.
I have been seeing a lot of trucks on the highways carrying what appears to be capital equipment and machinery. I have recently seen parts for the giant wind generators, many large storage tanks, motors, fan assemblies, valves, etc. Almost all of the pieces destined to either wind generator fields or to ethanol plants.
I really struggle with the ethanol plants -- especially in corn growing areas that rely on the Ogallala Aquifer for sufficient water to grow the corn. Think for a minute about what it takes to grow corn in the Texas Panhandle where our rainfall is approximately 20 inches per year, or less. The fields are prepared by tractors fueled by diesel, the primary nitrogen fertilizer (anhydrous ammonia) requires huge amounts of natural gas to manufacture, the water is pumped from an aquifer that lies several hundred feet below the surface and therefore requires energy to lift the water. Usually the irrigation pumps are powered by electricity, the bulk of which continues to be generated at plants fueled by natural gas. Once the corn is ready for harvest, the combines that shell it, and the trucks that take it to the ethanol plants are fueled by diesel. I have heard it said that we spend approximately $0.98 worth of fossil fuel to produce $1.00 worth of ethanol. It just doesn't make sense to me.
The one area of benefit that I see, is that the ethanol plants are a source of jobs in many smaller rural communities. I think that's great in the short run, but what will happen in the longer term? Will those jobs still be there in 10 years? Or, will they dry up with the demise of ethanol.
One argument says that this is a transitional time for ethanol. Eventually we will shift to a cellulosic basis for production rather than using corn. I think that's great, but will that reduce the amount of fossil fuel used to produce it? I doubt it.
Another problem with using corn, or any other crop for that matter, for making ethanol is that it is causing a shift in acreage from other crops to corn production. This does several things. 1) It increases the amount of fertilizer used which adds to potential runoff issues. 2) Corn demands a much larger amount of water for production than most other crops raised on the High Plains, further stressing the already significantly depleted water supply. 3) The acreage shift to corn from other crops drives up the price of all crop-based commodities. This may be good in the short-run for the farmers. But, it will eventually be reflected in one of two ways. Either our food and fiber costs will increase at the consumer level, or we will end up purchasing more from other countries.
If our strategy in developing ethanol as an alternative fuel is to decrease our reliance on other countries, it won't work. It will just shift the reliance from a minuscule percentage of our fuel demands to a significant percentage of our food and fiber demands.
Increasing crop prices may have the short-term positive effect of increasing farm income from the marketplace to offset government subsidies. This would be a positive benefit to the taxpayers of the nation if the Congress would just not spend that money on something else. We all know how that will turn out.
Currently there are significant government subsidies to incent the creation of ethanol capacity in our country. Some of the subsidies are direct and some are related to the investment of funds in alternative energy production in lieu of taxing those funds derived from other means. Either way, it is dollars out of the taxpayers pocket. I would much rather see that money spent on projects such as the windmill generators, or geothermal, or nuclear energy. The problem is, ethanol plants seem to generate more votes because of the "pork-barrel" nature of the projects.
It would be nice if Congress would vote for sensible legislation rather than their behavior being totally dictated by what will get them the most votes, or line their pockets the quickest. I think we need to fire them all and start over.
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