Levin: Corn prices are about to skyrocket

A truck driver called in to Levin’s show on Friday night to say that the price of corn that usually sells at $3.20/bushel has now more than doubled to $7.85/bushel because of the lack of corn being planted this year due to the cold weather and the rain. Considering that corn is used so profusely along with the continued push for ethanol, this could have a huge effect on food prices this fall.

Levin backs up what she says noting an article in Pajamas Media which says basically the same thing, except they reckon we will have to import more corn:

It would seem corn is back on the radar after having fallen off after the 2008 election, when ethanol was no longer a convenient club with which to beat the Bush administration.

Before that particular fight was over, however, former President George W. Bush had signed legislation which required 40 percent of the U.S. corn harvest to be slated for ethanol production, and for massive subsidies to make corn economically viable. …

This year could be a bad year; much of the corn in the eastern cornbelt is late getting into the ground, and from west Texas into Nebraska we’ve got the worst drought in 40 years. Parts of western Kansas have gotten no more than a quarter-inch of rain since the beginning of the year. This means the corn stocks could slip still lower.

Why is this a problem? Much like the price of oil, the price of grain worldwide is based on the dollar. In the case of oil, it’s because we’re the world currency and the largest user of oil. In the case of corn and indeed all grains, it’s because we’re the world’s largest producer and exporter. …

Now imagine we have to start importing grain. Suddenly Brazil or Argentina is setting the price, not us. Once you become a net importer of grain, you cease to be a world player in agriculture.

The issue with the mandate is that it is inflexible. Instead of allowing the market to decide how much corn should be sold to ethanol plants and how much should be sold overseas or used domestically, we’re mandating a certain percentage must go to fuel.

A fuel, it must be noted, which is inefficient when compared to gasoline, is hard on engines, and requires massive subsidies to be competitive with conventional fuels.

What remains to be seen is what happens next year, with the subsidies expiring, corn stocks likely lower yet, but a huge, inflexible mandate still requiring 40 percent of the crop go to fuel.

This is likely to be hard on food prices at a time when they are already going up. In an attempt to appease environmentalists — for whom nothing is ever enough — we risk mandating ourselves right out of dominance in one more area of the world economy.

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