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Grain farmers stand to post windfall profits this year if everything goes their way. But there's a lot of "ifsbCrLf in this scenario, and some of them would make your grandfather's head spin.
Even if this growing season goes well, we could pay a long-term price for prosperity. In the end, expensive corn could lead to food price hikes, disgruntled consumers, a voter backlash, and political moves to shut off grain exports or dismantle biofuel mandates.
I'm not trying to be a pessimist. Just hear me out.
By now you've seen Monday's report from USDA, which predicts
In any case, that's at least 7 million acres less than last year's 93 million acres.
And it could be
Part of the wet spring can be blamed on La Nina, which, if it continues, could lead to a hot, dry summer. Noted Climatologist Elwynn Taylor says the chance of below-trend yields this year is upwards of 75%.
Let's throw in some demand factors. Those of you who watched the webinar we held Monday night (you can watch it again by clicking here) heard marketing experts
Biofuel: Up to 32% of the 2008 corn crop will go toward ethanol. The Energy Bill passed last December will kick renewable fuel up to 15 billion gallons a year by 2015. Practically all of that right now comes from food crops.
Global supplies: Global wheat stocks in July 2008 are expected to drop to a 30-year low as world consumption has exceeded production for seven of the past eight years.
Weak dollar/exports: The dollar is at all-time lows. That makes it easier for foreign buyers to buy practically anything that is priced in dollars. That's why USDA predicted earlier this year that U.S. farm exports would hit a record $100 billion this year.
So what happens if
Other grain-exporting countries have already put the clamps down on overseas sales.
As a result, angry farmers have staged protests and are expected to plant thousands fewer acres to wheat when planting begins in May.
You think it can't happen here? The American Baker's Association recently asked USDA to review its export guidelines. It wants Congress to review biofuel mandates. It wants the White House to review policies on international food donations and export incentives. The bakers want to build up domestic wheat supplies and encourage USDA to open up million conservation acres for added wheat plantings.
In other words, the grumbling has started, even here, where the very idea of capping exports might seem, well, Anti-American.
A history lesson The U.S. did impose export controls on soybean shipments to Japan in 1973 during a similar time of strong international demand and rising consumer food prices caused by an inflationary monetary policy, says Ross Korves, an economic analyst with Truth about Trade and Technology.
As a result, Japanese companies invested in soybean production in
Restricting shipments of grain would send the wrong signal to both producers and consumers — here and around the world. But it wouldn't be the first time Congress has made a foolish decision on behalf of an ill-informed, frustrated electorate.
Our best hope is for perfect growing conditions. Is Mother Nature on our side in 2008?
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