Corn mania

Farmers of the world rejoice: The price of corn keeps rising.

Published November 21, 2006 7:44PM (EST)

Fueled by a demand for ethanol, the price of corn futures on the Chicago Board of Trade hit a 10-year high yesterday: $3.86 a bushel. This is rapidly becoming one of the biggest stories in global agriculture. There's gold in them there ethanol plants -- as long as the price of oil hovers around $60 a barrel and incentives for ethanol production and tariffs hiking the price of imported ethanol remain in place.

Until, that is, the price of corn goes so high that even under the current favorable incentives, ethanol manufacturers won't be able to make money. That moment may not be far off -- an analysis published by researchers at Iowa State University earlier this month calculated a price of $4.05 a bushel as the break-even point at which it will no longer be economical to build new ethanol plants. (Thanks to EnergyBulletin for the link.)

The study also estimated what would happen in other parts of the food chain if corn prices surged that high. One immediate impact: price hikes for pork and chicken. This is far from theoretical. On Monday, Tyson Foods announced that "rising corn prices could mean U.S. consumers will have to pay more for chicken, beef and pork next year that in 2007."

Tyson CEO Richard Bond said that "meat producers, processors and retailers will have to pass the higher grain price on to consumers because they cannot absorb it in their profit margins." (Ironically, Tyson hasn't had any profits at all for three straight quarters because of a glut of chicken and beef on the market, which makes one wonder just how much impact rising corn prices can have. There's too much meat on the market.)

But the most interesting ramifications of the high price of American corn, from a global point of view, is what it implies for other corn-producing countries, particularly in South America. One of the abiding gripes that much of the developing world has with the U.S. are the government subsidies paid to farmers to compensate for the low prices caused by American overproduction. But the U.S. is no longer overproducing. Ethanol plants can't get enough of the stuff.

This is great news for big corn producers like Argentina, which will now swoop into global markets that the U.S. will have to abandon. It could conceivably also mean good times are ahead for small-scale farmers in Mexico, who have a hard time competing with American agribusiness economies of scale, with or without U.S. subsidies. And since prices of other agricultural commodities will go up also (wheat prices will rise, for example, as wheat byproducts replace the livestock feed currently supplied by corn) -- farmers of all kinds will stand to benefit.

High prices for agricultural commodities are generally seen as a good thing for the developing world, with its legions of poor farmers. The bad news is that the environmental consequences of increased agricultural production are vast -- and not just in the U.S., where the industrial production of corn is in many ways a disaster.

The critical point is that these are not questions for the future. The dynamics of global trade and the relative economic situation of the farmer, in rich countries and poor, are shifting now. Biofuels will not solve the energy crisis, but they're still going to change the world.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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