Burning up food/feed supplies for energy
Grains continue their unprecedented harvest rally this week, pushing to new highs in corn and soybeans once again midweek.
Although we all anticipate a larger soybean crop in the next USDA Nov. report, still soybeans surge higher in spite of record large stocks in the US and the world. Higher soybean prices also mean improved economics for SAM growers to plant more corn and soybeans. But the market continues its fantastic advance!
It's hard to argue that the market is wrong, though, so perhaps our old supply/demand relationships for food/feed is not appropriate anymore? It appears to me that the financial community is now pricing corn/soybeans as a fuel, not food/feed. It's vogue to buy corn and soybeans, and sell energy futures lately (take a look at this trade performance the last 3 months!). And currently, their value as a fuel must be much higher than the value society has placed on grains for food/feed in the past few years. Some people argue that $50 crude oil translates into around $4 corn and $8+ soybeans. Since crude is currently trading well above $50, perhaps corn/soybeans are still underpriced?
For the first time this week I've read about a 'futurist' who is predicting bad social outcomes from the burning up of our food/feed supply for fuel. While most of us look at the ethanol and biofuels revolution as being beneficial to farmers/society, this viewpoint comes from Lester Brown, executive director of the Earth Policy Institute. He's worried about the global rush to alternative fuels made from food crops causing increased hunger in poor countries.
To the farming community, this is absurd as growers have suffered greatly through periods of high priced inputs (especially last winter's fuel/fertilizer costs) and low priced products. Its fortunate some growers were disgusted with this situation years ago and pushed using excessive food/feed products to produce fuel. Its because of that development that the ethanol and biodiesel have emerged as an important use of grains this year (20% of corn and 13% of bean oil) and rapidly expanding. If it weren't for those brave individuals, we'd have a 3 billion bushel corn carryout projected this year instead of 1 billion! And next year, yes, next year, is the period that excites the funds/speculators the most!
When you think about the idea of burning up large amounts of our corn/soybean crops for fuel, it has to be an exciting thing for farmers who have in the past continually overproduced for the expected feed/food use. But when it comes to fuel, we could use the entire corn and soybean crop for fuel and still barely make a dent in the US import needs for energy. That is a really exciting development, particularly when you realize that food/feed use might still be a more valuable use of grain than fuel to society. Its just that they haven't paid for it like it was that valuable for many years. But the value as fuel with $50+ crude oil all of a sudden might be the impetus to give growers a price raise for their food/feed supply.