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3 July 2011 - Ethanol war continues

During my time in Norway last month visiting with Norwegian farmers, there was one topic that never entered our conversation...ethanol. There was no discussion on corn-for-ethanol pushing food prices higher or putting livestock producers out of business because of high feed costs. There are two obvious reasons...the Norwegian climate allows very little corn production, and in Norway oil is king; it is now the third largest oil exporting country on the planet.

However, before leaving, once again I was really troubled by the war of words between corn farmers and livestock producers through their commodity groups after a 73-28 Senate vote to immediately end the ethanol subsidy and import tariffs. Even thought the final vote is expected to lose, the National Cattlemen’s Beef Association hailed it as an indication that Congress is ready to “level the playing field” and bring feed prices back to levels to encourage livestock production.

On the other hand, corn growers said it’s their time to turn a profit and pointed out that cattle and hog prices have been holding strong during the spring and summer. They also reminded members of Congress that ethanol cuts our dependence on foreign oil and ethanol plants provide employment in rural America.

I understand the concerns of both sides.

But now, fast-forward to June 30th and the USDA report that “leveled the playing field” without any help from Congress, again proving several points...if the financial incentive is there, America’s farmers will produce more; prices never go the same way forever; and “the cure for high prices is higher prices and the cure for low prices is lower prices”. The second largest planted corn acreage since 1944 and a shocking 11% increase in corn stocks caused one major trading firm to lower its 6-month corn price projection from $7.80 a bushel to $5.75. That should bring a smile to livestock folks.

But, I have one more question. Livestock producers were quick to applaud the Senate for its ethanol vote, but where were they earlier this year when Congress said it would not even consider legislation to cut subsidies to oil-producing companies? Why did I hear no expression of concern about leveling the playing field between big oil and alternative energy producers? In my opinion, the price of oil has far more impact on the bottom line of all producers than the ethanol subsidy.

My thought on Samuelson Sez.