Bill Bonner, the founder and Editor of The Daily Reckoning; gives a fascinating history of corn in America. In the Easter Monday newsletter, he talks about how Corn (go down for the article, THE FRUITED PLAIN) grew into the currency of America and the current boom due to the rise in ethanol from corn in the US.
But now, there’s a new bubble out on the plains…and a new political scam
to go with it. In Martin County, Minnesota, says Fortune Magazine, six new
ethanol plants are either in operation or being built. In the last eight
months, the price of corn has doubled, from $2 a bushel to $4.
Corn is not just a crop in the America; it is a currency. Corn is used to
feed pigs and cattle. Corn syrup is a main ingredient in Coca Cola,
candies, cakes, ice cream, hamburgers and many other products. When the
price of corn changes, every calculation changes with it. The price of
land, for example. An average acre in the mid-west produces 180 bushels.
At $2, that puts the gross yield per acre at only $360. After costs,
farmers had little left over – only about $30, according to Fortune.
But at $4 an acre, farming becomes much more profitable…with net yields
10 times higher than they were two years ago. With that kind of money
rolling over the plains, farmers grow bold. They begin to cast an eye over
the “Property for Sale” section of the newspaper…and stop in at the John
Deer dealership. In fact, Citigroup is expecting a 25% increase for John
Part of the trouble with this boom is that it depends on ethanol.
Thirty-one new ethanol plants have been built in the United States since
2005. When corn was $2 a bushel, and oil was $70, they could make more
than a dollar per gallon. But at $4 a bushel, their profits have fallen to
3 cents per gallon. And if corn continues to rise, even with their
subsidies, they will be losing money.
For more on fuel and food, check out these articles.