The price of tortillas in Mexico has tripled in recent months and Ruth Gidley in a piece entitled ‘As biofuels boom, will more go hungry’ is blaming ethanol.
With US government greenhouse policy and the price of oil favoring a shift to ethanol, the price of corn is climbing. The US produced 24percent more ethanol in 2006 than in 2005.
Corn is a main ingredient of tortillas as well as ethanol.
The Mexican government responded to rioting in January by capping the price of corn.
Is concern over global warming or the price of oil, or both, driving the demand for ethanol which is making food more expensive in places like Mexico?
Jennifer Marohasy BSc PhD is a critical thinker with expertise in the scientific method.
I don’t have personal experience with corn, but with Canadian wheat, the current retail gasoline price of $1.00/L can’t possibly push the price of wheat up. Almost 1/2 of the retail price is various taxes and retail profit, so the current best case wholesale price is $0.50/L.
This link is a little old, but the breakdown hasn’t changed:
http://www.fin.gc.ca/toce/2005/gas_tax-e.html
The best numbers I can find are 370L/tonne of ethanol produced from wheat.
http://www.gov.mb.ca/est/energy/ethanol/ethanolfaq.html
At $0.50/L wholesale the $370×0.5=$185, plus distillation cost and profit which sets the feed wheat price that a distiller can possibly pay at much less than $185/tonne. The ethanol plants here are usually tied to feed lots or some other bi-product idea to make them feasible, but they cannot pay much more than $100/tonne and have any hope of being feasible.
The feed wheat price was ~ $120/tonne in 1980 and prior and currently is floating around $150/tonne, but it was below $120 at many points in the last few years.
http://www.agr.gov.sk.ca/apps/MarketTrends/MTMain.asp
http://www.wce.ca/DeliveriesCashMarket.aspx?first=cashprices&second=daily
http://www.agr.gov.sk.ca/docs/statistics/EconomicFactSheet2003.pdf
Somebody isn’t doing the math. At 370L/tonne of ethanol production, we would have to see retail gasoline double in price before the distillers could possibly push up the feed wheat price and be able to show any profit. I would think the corn situation in the U.S. is due to subsidies, Al Gore’s Powerpoint Oscar and Bush’s ethanol speech more than real economics.
In the meantime, the predicted U.S. soybean acres converted to corn have pushed up the NH3/nitrogen fertilizer demand, natural gas usage and they want to raise my residential gas price again.
Robert,
I think you are confusing the issue by focusing on wheat?
Ethanol is made primarily from corn in the US? The price of corn in the US and Mexico has increased significantly with the extra production of ethanol?
Bob you’re forgetting the US ethanol industry is receiving generous subsidies to increase their margins in turning corn into ethanol. I saw a report which worked on ethanol production being profitable anywhere below $5.80 a bushell. Thats nearly 50% above where it is trading now. So 50% more pain for the tortilla eaters of Mexico before ethanol production is discouraged.
It would be interesting to know what proportion of the Tortilla value is the raw ingredients. Do they make them at home or are they purchased like we would.
Farmers are energy harnessers and should be paid accordingly. I think part of the bio-fuel push is in recognition of the energy value of crops. Part is realising how much money is going overseas to pay for oil vs how much is coming in for agricultural exports(and how much money is expended subsidising ag). At $0.51 a gallon, US ethanol subsidy looks pretty cheap to me if they no longer have to subsidise the corn in the first place. Bonus is the jobs and value of infrastructure, and further wealth creation for farmland instead of sending the wealth to Dubai etc. Ethanols “green” credentials put a little icing on the cake.
Perhaps countries like Mexico will have to grow more corn and /or ban corn exports.
I heard that prior to the ethanol bubble, the US produced a surplus of corn and then dumped it on the world market. The ethanol industry has recently grown to the point where there is now no surplus to export, so the US corn market has now risen to equal world prices as they start to import. This has presumably caused an abrupt spike in Mexico’s corn price. It’s the penalty someone pays when you fiddle with a market using subsidies.
The US Dept of Energy has just allocated about US$400 million to support the launch of 6 commercial cellulosic ethanol factories, so if I was a US corn farmer, I wouldn’t get too used to the high prices for corn. There’ll be a correction at some stage.
In the original article that Jennifer linked, there is a line “Now U.S. farmers can make good money selling grain to make ethanol…”
No, they can barely break even growing corn, even with subsidies.
This is the sad part for farmers. Feed grains prices are all tied together and they all have been generally at the same price since the late 1960’s, while the price of everything else has quadrupled.
Saskatchewan farmers are carrying $6 billion of debt:
http://www.agr.gov.sk.ca/docs/statistics/FarmDebt.asp
http://www.agr.gov.sk.ca/docs/statistics/OperatingExpenses.pdf
There are only 50,000 farms in Saskatchewan carrying that $6 billion of debt. The Royal Bank of Canada declared 1.6 billion of profit last year.
I think NAFTA wouldn’t allow Mexico to ban exports to the U.S. anymore than Canada. The recent ethanol bender has no thought behind it and U.S. farmers are jumping on subsidies, not real market prices. I don’t believe that any amount of consumers will pay double for ethanol over gasoline out of the goodness of their heart.
Increased U.S. corn production will not bring any real profit to U.S. corn farmers, force up the corn price in Mexico and increase natural gas usage by having U.S. farmers dump 100lbs/acre of nitrogen fertilizer to grow subsidized corn rather than soybeans (which don’t require nitrogen fertilizer).
Consumers won’t or can’t pay a realistic price for food or ethanol. There are no winners in this, except the fertilizer companies.
http://www.hpj.com/archives/2007/feb07/feb19/Growers-Supply–notethanol-.cfm
High Plains Journal
March 13, 2007
Growers- Supply–not ethanol–cause for rising Mexican tortilla prices
Rising tortilla prices in Mexico are due to a supply issue in that country–not increased U.S. ethanol production or U.S. corn prices. The U.S. Grains Council and the National Corn Growers Association report that lower corn production in Mexico and the lack of import licenses have caused white corn shortages there.
“While there has been much in the media on this issue, no one in Mexico is pointing fingers at the United States,” said Chris Corry, USGC senior director of international operations. “They recognize that this is a supply issue coupled with a political situation in Mexico.”
http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20070213/OPINION/702130330/1285
February 13, 2007
ADVERTISEMENT Health Source 2007
Will Mexico get modified corn?
By Kenneth Emmond
McClatchy-Tribune News Service
Mexico’s sudden, acute and possibly chronic shortage of corn brings into focus the question of whether genetically modified strains should be welcomed or shunned.
The environmental activist group Greenpeace thinks it’s more important to keep genetically modified foods out of Mexico than to ensure a supply of affordable food for everyone, a viewpoint foreigners and the comfortable middle class can afford.
There’s already been a call from some producers for Mexico to relax its ban on genetically modified corn. Legislators must decide whether to change that – or whether to settle in for a long period of insufficient corn production and high tortilla prices.
Schiller,
It seems like researchers now want to ban GE maize in Europe , the MON 863 maize to be accurate.
This maize was considered safe by Monsanto, but today in a press release the French research group CRII-GEN had in an independent study revealed that the GE maize might be dangerous to consume.
The study indicated that lab mouse had injuries in internal organs and blood cell deficiences etc. after having consumed this GE maize.
I’m sure there will be much fuss about this new study in the near future.
I think that GM crops could have some benefit, but my personal opinion is the problem is the effect of cheap fossil fuels over the last 60 years on agriculture. I think that farming practices caused low organic matter in topsoil which caused a lot of the soil erosion problem and then the push to low and zero till were all about getting farmers to consume more fuel, fertilizer and chemical. GM crops are more of the same. They aren’t going to fix anything and the only one to benefit is going to be Monsanto and similar companies, not consumers or farmers. Where our farm is, if you summerfallow, the nitrogen from organic matter and lightning/rainfall allows for a very good crop the next year without nitrogen fertilizer. That area is in a dark-brown/black soil zone and doesn’t suffer from soil erosion. Farmers don’t summer fallow land because in the short term, they can’t afford to. A quote from a page I wrote:
http://www.shpegs.org/background.html
“Electricity? What about Hydrogen, BioDiesel and Ethanol?
There are only two major energy sources that are being used by society, solar and nuclear. All of the energy transport media products whether they are fossil fuels or manufactured media like biofuels and hydrogen have their energy source in either solar or nuclear.
Hydrogen is clean burning, but there are difficulties in transport and storage of pure hydrogen.
Biofuels are great ideas for direct replacements for fossil fuels, but the problem with biofuels is the effect that relatively cheap fossil fuels and technology have had on agriculture in the last 60 years. Until around 1940, the world was fed without the use of fossil fuels. It was very labor intensive and employed a large portion of the population. Fossil fuels changed farming methods and urbanized society. The continual decline in agricultural profitability, fossil fuel based fertilizer and larger farm equipment caused farms to become larger to be able to support fewer owners. Renewable and portable energy products like Ethanol and BioDiesel now take more fossil fuels to produce and deliver than if the the consumer burned the fossil fuel directly. Although it is relatively easy to convert existing transportation to biofuels, the solar conversion efficiency of traditional crops used for biofuels isn’t very high: ~0.02% of the solar isolation on a corn or wheat field actually gets converted into ethanol or biodiesel. The ease of conversion of the transportation industry offsets this and there is a lot of work going into more efficient feedstock, but the massive amount of fossil fuels consumed by modern society makes it very difficult to produce these products on a scale that will affect fossil fuel consumption. This opinion is by no means meant to be negative regarding biofuels, it is focused on improving the efficiency of production of biofuels.
Agriculture needs to be fixed before these products can actually lower the fossil fuel dependency, and there is no way to move society back to the farming methods that fed us prior to fossil fuels. If agricultural energy inputs were moved towards renewable sources, the amount of fossil fuel required for consumer BioDiesel and Ethanol could be reduced. With common technology that is found in locomotives, electric drive mining trucks and the battery technology used in submarines, electric farm equipment could be built. Hydrogen powered farm equipment is also a simpler conversion than passenger vehicles due to the low travel speed and high weight tolerance. A high pressure hydrogen tank on a farm tractor and the hydrogen conversion of internal combustion engines is relatively easy, but the efficiency of hydrogen electrolysis from water and the energy required to compress hydrogen are areas that need further development.
Even with existing electricity pricing electric powered agriculture makes economic sense if not environmental sense.
A 200hp diesel farm tractor consumes approximately 50 L/hour of diesel under load:
200hp diesel: 50L/h @ $0.80/L = $40/hour
The equivalent electrical power at average Canadian pricing per kW/h:
200hp = 200 x .746 kW/hp = 150 kW/h electric @ $0.10 kW/h = $15/hour
The major engineering, usability and economic challenge in building large electric farm equipment is around battery cost and the charging system. The high torque at low rpm characteristic of electric motors allows the powertrain to be much simpler than in diesel systems and due to to low travel speed, high weight tolerance and low traveling distance from the farmyard, many of the obstacles in consumer electric vehicles aren’t an issue in electric farm equipment. Converting agriculture to electricity would be difficult, but it is a simpler approach to produce Ethanol and Biodiesel with electricity and use those products in existing consumer vehicles than to convert the consumer vehicles to use electricity directly.
It is also possible to extract hydrogen from water with electricity rather than obtain it from natural gas. A more efficient method is to produce bio-gas methane and crack the hydrogen. Anhydrous ammonia and nitrogen fertilizer can be made without fossil fuels. If there was local, cheap and clean electricity, agriculture would move away from fossil fuels. If the agricultural non-renewable energy inputs lowered, Ethanol and BioDiesel production would become feasible and carbon balanced.”
Electricity is the ultimate “flex fuel” but the problem continues to be the weight of batteries and charging times. As always, technology is the bottleneck and the best technology is never quite good enough–that’s where progress comes from.
Slightly O/T,
we once had a Premier who ruled that a certain % of electricity generation had to come from renewable sources. Generators scratched their heads and came up with the solution – burn woodchips in the coal fired power stations. They figured out that 1 tonne coal = 25 tonnes of woodchip so if woodchip is ~$20/m3 ($10/tonne) then the equivalent of 1 tonne coal was $250 tonne.
If coal is $40/tonne that is a huge loss plus the increased bulk meant that more machinery is used to move x25 more material. The new premier canned the project and there is now a glut of material.
I don’t buy the battery weight argument on large equipment. In passenger vehicles weight is an issue, but a 200hp farm tractor weighs 20 tonnes, moves at 10 km/h in the field and retails at $150k.
The powertrain is much simpler in an electric locomotive or mining truck than a diesel transmission.
The batteries probably have to be sodium (zebra) like in submarines and multiple sets on an easy to change cart for charging/continuous operation, but I don’t think it’s anywhere near the problem with farm equipment as it is in passenger vehicles.
It just hasn’t been done. Humankind went for 10,000 years before someone thought of putting a fan in front of a tea kettle and invent the steam turbine. We’re not that smart.
Ann I am sure a company is going to release a transgenic crop cultivar with ‘known’ detrimental health affects??? Are we from the same planet? Any company that did not take great care and exercise due diligence in making sure their products were not 100% safe for consumption particularly in food would be sued off the face of the planet after the first tummy upset. Thats what regulatory frameworks and the LAW are there for.
IS there actually anyone here who is worried about grain supplies moving forward? Or are reports from minority groups more of a concern for you?
And Bob corn at $4 a bushell is highly profitable for corn farmers. $3 is not.
Can’t people see that the whole push for getting these ethanol plants on the ground is in the longer term to ensure that at least half of the cellulosic infrastructure project is on the ground and paid for NOT by the US government. All they need now is to perfect the biodigesting models to break the cellulose down into sugar as efficeintly as possible and this is a big task given the logistics of handling such a bulky commodity – straw. And just because ethanol may switch to more cellulsoic than grain in the future, there will still be fierce competition for land between food or fuel uses. The farmer has the least amount of worry moving forward. It is the city folk who ought to prioritise what they worry about in this world.
Schiller you run some very logical trains of thought.
What a lame, thinly veiled, attempt to discredit the push for cleaner fuels
Aaron,
I would like to hear from a U.S. corn farmer who needs to buy a $275,000 combine that burns $40/hour of diesel how “highly profitable” $4 corn is. If it was 1972, that statement would make sense.
Anthony,
I agree, cellulose ethanol has a lot of positive potential. It’s a Canadian company that has the lead on it:
http://www.iogen.ca/
I’m not sure what the realistic quantity of cellulose feedstock is. I think a large percentage of wood bi-products are already burned in biomass power plants in both U.S. and Canada. Proper long term soil stewardship doesn’t lend to extreme cereal straw use, but it has potential for non-food low value biomass feedstock, so it should be a positive process.
…once the patents expire.
Perhaps Mexico, which has the potential to produce vast quantities of corn (lots of humid rich soil) should try to reach that potential by imitating the most successful agricultural (the United States, my home state of Iowa in particular) rather than the less successful economies.
Strange, the price of Mexican food in Iowa is falling, we are producing more corn within two hundred square miles of my rapidly urbanizing home in the middle of Iowa than the entire nation of Mexico, I’d guess.
Yes, if only the Mexicans could imitate the US economy. Oh… hang on… that would mean we need another earth or two to sustain their living standards.
Enjoy the burrito’s Sporer.
Aaron,
The study is commissioned by Greenpeace so most will think this is again superficial Greenpeace propaganda, but it is interesting because it is the first time a study that indicates that GMOs might be harmful to animals and humans.
The study will be published for the first time in a peer reviewed journal.
Some information from Planet Ark :
http://www.planetark.com/dailynewsstory.cfm/newsid/40849/story.htm
Simple Bob. Visit agweb.com! America’s most frequented farmer website. Blogs on there with plenty of happy farmers. I’ll let you in on a little secret. Not many American farmers actually own combines. The majority is harvested by contractors so the $275,000 depreciating asset running on $40/hr diesel fuel is not the farmers’ problem at all. Better to pay contractors rates and have that equity working for you in other places eg uranium shares, fertilizer producing shares, even in land (Disclaimer: this is not my personal investment strategy in case I offend Ann)
Ann you never answered the indirect quesion posed. Have another think and get back to us all …
Aaron,
The combine comment was one small part of an agricultural operation related to feed grain prices being at generally the same spot for the last 30 years.
When my Dad retired, he went out and bought a new 2388 Case combine and did custom harvesting for 6 years. In Canada, the rate was around $110/hour, crop owner pays the fuel. My dad would go out and usually make as much money custom combining in a month as I made all year, but he owned everything outright. Leasing isn’t less expensive than owning, the problem is in getting skilled operators to run your equipment during a short season.
Go here and look at annual average corn prices:
http://www.farmdoc.uiuc.edu/manage/pricehistory/PriceHistory.asp
Corn was at $3.10US in 1974 and $2.20US in 2004 and has recently climbed to $3.60US. A new 200HP 4wd tractor is around triple the price of the mid 1970’s and so is diesel. As pointed out above, cheap fossil fuels over the last 60 years allowed this to happen in agriculture, but how would you like to try and live on what your salary job paid in 1974? How would you like some uniformed bystander to tell you about how happy you should be to have your salary come back up to the 1974 level, because it was below that for the last decade?
hehe.
I don’t know what kind of uniform the uninformed bystander is wearing in my last comment.
Bob don’t get me wrong I personally feel grain is still too cheap otherwise none of it would be used for biofuel or corn stoves. At the moment markets are saying forget producing quality grain for human consumption and just focus on producing for cars. In fact biofuels will be the death of quality based payment systems IMO. And I won’t shed a tear because acquirers have for years abused this to get grain even cheaper than cheap. That biofuel producers would value grain higher than food producers is a bit of a slap in the face for farmers but trust me a welcome reminder is coming for consumers that it is more important to eat than drive.
I am merely making sure the ‘whinging farmer’ stereotype is not fueled here. Farmers still spend far too much money and prepare far too little for lean times. There is a agricultural boom coming but it will also mean a boom in input costs so is not coming without increasing inherent risks. The cost of failure has never been so high. I know for a fact almost every farmer in Australia has had to draw on increased loan facilities this year …
My advice to anyone looking to offset the pain coming from expensive food is to invest in fertilizer producing companies (check out the SP movement of IPL in the last 6 months and then there are emerging phosphate producers in ARU and SMM, also one potash producer in RWD). Then you might like to also consider owning agricultural land or at the very least leveraging to listed companies with a good agricultural land portfolio (there is only one! AAC and also producing a commodity which is about to hyperinflate in cost – meat. Which is good for AAC given they are pasture based or low input as opposed to grain fed). Farmers have to get smart because honestly I cannot even begin to explain how excited I am about the future for farm profitability, but it will only benefit those who are producers and those who invest wisely. After all, food is the most important commodity in the world. We will look back on the era of cheap food as an amazing abberation in the history of mankind!
Now I am consciuous of time because I have been nagging Luke on spending too much time on the puter … Haha Gotta get to work! Sleeping. Good luck!
BTW I am a farmer and I own nothing new. Eyes wide open for clues to how the future will unfold …
Aaron:
“IS there actually anyone here who is worried about grain supplies moving forward? Or are reports from minority groups more of a concern for you?”
Now I’m sure that you don’t want me to spout Greenpeace GE policy Aaron, and unfortunately I’m not up to date with GE research.
What I learned from GP was that all GMOs were bad , but not the technology.
To save the world’s starving population with GE grains was only a myth according to GP.
OK, I’m independent now from all organisations but as far as I have understood , there are no quick fixes. There seems to be negative side effects as well???
I checked out a Swedish study from an Agricultural University on forestry and they stated as well there are benefits as well as drawbacks with GE technology( this study was made on aspens).
What really worries me is that scientists from the GE industry and from green groups have such wide gaps in opinions. What is really the truth about herbicide and pesticide use in agriculture.
Do GE crops require less toxics than conventional farming? Questions like that are very important but the answers differ dependent who you ask.
Finally, GP told us that GE soya for animal fodder was the main cause for rainforest destruction in the Amazon, but the rebuttal from the industry was that conventional soy bean plantations are the main cause for cutting down the Amazon.
Ann, No one has much experience with GE producing in Australia other than cotton growers.
I can tell you that GE cotton has reduced the average number of insecticides from 12 to 2 and the 2 that we do apply are “softer” being species selective so as not to harm the beneficial insects in the crop.
GE Roundup Ready cotton has reduced the amount of residual herbicides used in the industry.
Costs of growing GE vs conventional are not a great deal different, nor are yields,in average years. But in heavy insect years, or wet years where we can’t cultivate, they shine.
I think you would agree that the reduction in chemicals applied is a good thing. We also think the GE cotton uses less water because of less fruit loss along the way. The plant hasn’t wasted energy replacing fruit that has been damaged and fallen off.
420 million ‘always eager to sue’ Americans eat GM foods on a tri-daily basis and have done so for over 15 years with no third legs appearing and no mass die off. That’s probably the best scientific study anyone needs to see. Are there still conventional and organic farmers in the US? Absolutely! No-one forces a farmer to choose GM crops despite the fear campaigns run by anti GM groups.
So go talk to a cotton farmer not GP. Rojo is spot on there with their reduction in pesticide use. Rainforest destruction is occurring because we are running our food stocks increasingly lower, running up prices and hence potential profits on offer for farming new land – its that simple. GP is a dangerous threat to humanity. It offers no solution to these declining global food stocks so one could argue has an agenda to oversee a massive die-off within our lifetimes. If GP wants to criticize, give me alternative policy and I’ll grant them their respect. You fear Monsanto, I fear Greenpeace.
GM is not THE solution to the problem of our declining ability to feed ourselves but if we want to address this issue proactively then it is an essential tool in the toolbox.
aaah, the old bedcover effect.
pull the sheets up to cover your face and your feet stick out of the bottom. begin removing edible crops from arable land and replace them with biofuels, and people are going to get hungry, and remove the remaining intact pockets of native veg once and for all.
GM or no GM, there is only so much land…
OK, Rojo and Aaron…thanks for the discussion!
The best protection remnant vegetation has is the stuff that is already cleared. Make sure what you need comes off cleared land and farmers won’t pillage forest for more capacity to produce. Organics (halving production) and the non adoption of GM higher yielding crops leads to increased rates of land clearing.
Whether you like it or not, GM crops increase yield and help to protect remnants from clearing!
Where are the do-gooders now after a do-good dose of FACTS? Oppose GM you are overseeing the destruction of Indonesia and Brazil’s rainforests to make way for sugarcane, oil palms and soybeans! I know with 99pc weed control with Roundup Ready Gm crops on my farm alone I could probably produce an extra 100 tonnes of grain that may normally be lost to weeds I failed to control with marginal conventional practises. Every year weeds steal grain from your fastly depleting coffers!
“GM or no GM, there is only so much land…”
Very true Julian but if you suggest we have an overpopulation problem you generally are placed in the Malthusian basket because of course we can continue to feed the world with decreasing arable acres, rising populations, increasing input costs, decreasing water resources and increasing weather risks like namely more frost events (Motty won’t like me suggesting this is a problem as the world is ‘naturally’ evolving )! Does this board represent the thinking in our think tanks? Lord help us!
Aaron,
According to GP , some weeds in your crops are only good for the wildlife:)
OK, GP thinks this GE issue is a political one. You know about them multinational gigants ,that in the past have been involved in the manufacture of DDT and Agent Orange, they always mention these substances in connection with Monsanto…
The prognosis is that the meat production and demand for meat will increase hugely in the future.
From an European view this will mean even a more unsustainable agriculture.
Europeans import 70% of Brazil’s soybeans for animal fodder, much of it for milk production.
The milk will also end up in turn in Brazil!
Brazil is a developing country and is in much need of foreign trade and currency and has developed this huge sector in soybean production, (that is devastating for the rainforests), to increase the revenues.
The transports are as well devastating.
I would like to see a list of benefits and drawbacks with GMOs !
Only advice I have Ann is don’t ask Greenpeace and don’t ask Monsanto. Speak to the people who have the choice to use them or not and the ones that know their environment the best – farmers, and make that the smartest ones.
We are running out of time though! In fact the US ethanol push is largely fast tracking our way to a die off and I say that to shock because people need to be shocked. I guarantee when this happens we won’t be hung up on on the plight of the endangered blue eyed scarlet singing bird, it will be on number one or the irrational instinct, as Sigmund Freud so perceptively points out.
Good luck in your research Ann. Good on you for seeking the truth but know the truth may be far scarier than you may have wanted to know. Marry a farmer and you’ll never go wanting for food … Ha! Actually the analysts are calling them the new sheiks … If it gets to that it will be an ugly world outside of farming I’d say. Eating is the most non negotiable consuming habit that exists.