1 for D&G: A Bubble Down On The Farm?

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

and you believe ethanol will be abandoned? I don;t think so. Fascist Wash, DC gets too many dollars from the likes of ADM etc to do that. they'll cut unemployment first...

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

and you believe ethanol will be abandoned? I don;t think so. Fascist Wash, DC gets too many dollars from the likes of ADM etc to do that. they'll cut unemployment first...

Ethanol doesn't need to be abandoned in order for its effect on corn supply and demand to be moderated or removed.

It can shrink 10% a year, it can even just fail to keep pace with inflation.

What it won't do, is grow 18.4% a year as it did from 2002-2003 to 2010-2011.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

really?

http://www.heritage.org/research/rep...thanol-mandate

The mandate quickly proved to be a mistake-raising rather than lowering fuel
costs, sparking food price inflation, and invoking environmentalist opposition
during its first two years. Nonetheless, a bill to increase the requirements
nearly fivefold passed Congress easily and was enthusiastically signed by the
President in December 2007. Thanks to this measure, America is now committed to
9 billion gallons of renewable fuels in 2008 and 36 billion by 2022. For at
least the next few years, almost all of this mandate will be met by corn
ethanol.

Seems to me big kleptokratik government WANTS more ethanol...


But WAIT, there's MORE!

http://farmlandforecast.colvin-co.co...om-brazil.aspx

U.S. Importing, Exporting Ethanol To
and From Brazil


(Corn&SoybeanDigest)
Flawed carbon accounting schemes at both the federal and state level
are creating a dynamic where the U.S. is importing ethanol from Brazil while
simultaneously exporting greater volumes back to Brazil. This “ethanol shuffle”
is occurring exclusively as the result of state and Federal fuel regulations
that “treat Brazilian sugarcane ethanol as if it were the Holy Grail of
biofuels,” according to Geoff Cooper, the Renewable Fuels Association’s vice
president of research and analysis.


In his recent blog post,
“The Ethanol Shuffle,” Cooper explores this convoluted trade relationship and
how U.S. policy is turning world ethanol markets upside down.

The heart
of the issue is how both the EPA and the California Air Resources Board (CARB)
are calculating carbon emissions for corn-based ethanol and Brazilian sugar
ethanol. Under both the federal Renewable Fuel Standard (RFS) and the
California Low Carbon Fuels Standard (LCFS), the carbon footprint of Brazilian
based sugar ethanol is deemed far superior to corn-based ethanol. This results
in a growing incentive for imports of ethanol from Brazil to meet increasingly
aggressive carbon standards. At the same time, a struggling Brazilian ethanol
industry cannot meet its own domestic demand. As such, Brazilian ethanol
producers are finding it more valuable to export their product to America (and
the carbon emissions that go with ocean transport) and import growing volumes
of U.S. ethanol (and the same carbon emissions).

*snip*

You see, YOU may not believe it will grow, and perhaps we come to some semblance of sanity here in the US over this ridiculous program, but just like lettng the banksters skate free I have no immediate fear this ethanol business is going away anytime soon.

"follow the money"...

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

America is now committed to
9 billion gallons of renewable fuels in 2008 and 36 billion by 2022. For at
least the next few years, almost all of this mandate will be met by corn
ethanol.

...

You see, YOU may not believe it will grow, and perhaps we come to some semblance of sanity here in the US over this ridiculous program, but just like lettng the banksters skate free I have no immediate fear this ethanol business is going away anytime soon.

"follow the money"...

All the mandates for the future mean nothing in the face of ongoing deficits.

To which I'll add:

http://eprinc.org/pdf/EPRINC-CornLimitsEthanol.pdf

One of the major obstacles to rapid increases of corn ethanol into the gasoline pool is the rising cost of ethanol's principal feedstock, corn. Domestically produced ethanol should have provided some modest constraint on the rising cost of gasoline as turmoil in the Middle East and North Africa has sent crude oil prices well above $100 per barrel (bbl). Instead, ethanol has seen its feedstock costs more than double over the past 10 months, an increase considerably greater than the rise in crude prices over the same period.

...

Ethanol futures for May 2011 have traded at $2.60 per gallon, about 80 cents below RBOB gasoline, while corn has traded at above and around $7.60/bushel. A bushel of corn produces 2.8 gallons of ethanol plus $0.35/gallon of DDG (distillers’ dried grain, a byproduct of the ethanol production process used in cattle feed), implying a corn crush of practically zero when DDG is excluded and a crush of $0.35 with DDG. This suggests poor profitability, if any, for ethanol producers at current prices. DDG provides the only income to offset weak ethanol prices, which are barely recouping the cost of corn, but not enough to recoup operating, capital, and transportation costs. Ethanol producers have recently remained profitable because many purchased their corn on contract months ago when prices were lower and have hedged against rising prices. Over time futures contracts and hedging will provide diminishing returns should corn prices remain high.

In an environment of high gasoline prices, high corn prices will make it difficult to market large quantities of E15 which has been viewed as a bridge to higher ethanol blends, such as E85. As figure 3 below shows, the cost of the corn that goes into a gallon of ethanol costs 40% more than the amount of crude oil needed to produce a gallon of gasoline when adjusted both for the lower BTU value of ethanol and ethanol’s DDG recovery $.35/gallon.

...

But ethanol consumption has doubled since 2007 and as a result the gasoline pool has nearly reached 10% ethanol saturation, leaving little remaining space within the existing pool to incorporate the legally mandated volumes of ethanol called for over the next several years.

...

The RFS and related ethanol support (mandates, subsidies, and tariff protection) have resulted in some reduction in crude and gasoline imports. However, these reductions have come at a very high cost and substantially exceed any potential energy security benefits from reduced imports. EPRINC estimates that the full cost of the $0.45/gallon ethanol subsidy is closer to $0.90/gallon as the U.S. would consume ethanol at approximately half its current volume absent a mandate or blender’s credit. By this metric the real cost of the blender’s credit is $37.80 for every barrel of incrementally blended ethanol over a subsidy and mandate free base case. Adjusted for energy content, the blenders’ credit cost is $56.70 per barrel of gasoline equivalent – a premium of $1.35 for every gallon of gasoline offset by the RFS. Estimates by CBO (Congressional Budget Office) are in the same range.14

[coolhand]

Re: 1 for D&G: A Bubble Down On The Farm?

RE: "All the mandates for the future mean nothing in the face of ongoing deficits."

C1ue-

I appreciate all your arguments re: ethanol & the deficit, etc., but IMO you are missing a few critical facts:

1. We use 40% of our corn crop to generate 870,000 barrels/day of ethanol.

2. We get about 8% of our gasoline from corn ethanol (numbers may not match due to fact we are exporting ethanol to Brazil & other places.)

We can look at this a number of different ways:

1. When Libyan oil production went down this spring in the uprising, it removed 1.7m b/d or so from world supplies, or call it 2%. Crude prices globally rose 30%. So let's play devil's advocate. Let's say you are right & they completely stop corn ethanol production in the US. Corn prices collapse back to $2.50 or lower; but if a 2% cut to global oil supplies drove a 30% increase in price, an 8% cut to US gasoline supplies should result in at least a 8% / 2% = 4, multiplied x 30% = 120% move in US gasoline prices. Or roughly $8.00 per gallon.

In your honest opinion, which scenario do YOU think is more politically palatable? $6 corn & $3.50 gasoline, or $2.50 corn & $8.00 gasoline? Knowing that the only 2x we've seen that at "only" $4.00 gasoline, the US economy has quickly tanked, leading to collapses in tax revenues & skyrocketing deficits? Corn ethanol subsidies suddenly look very "cheap"!

2. Let's look at it a different way: The US is produced roughly 870k b/d of corn ethanol in September. Again, let's stop that altogether, for sake of argument. Again, corn collapses to $2.50. But global oil spare production capacity is suspected to be below 2m b/d already, per GS in the article below. This math isn't exactly right, since gasoline is a product of crude, but for simple math, we will cut 870k b/d of corn ethanol production & replace that with gasoline. That takes our global spare oil production capacity comfortably below 1m b/d. This would be the instant removal of close to 50% of global spare capacity!! Global spare capacity has only been under 1m b/d briefly 2x - once in 2005 (oil prices up a bunch), & once in 2008 (oil prices up to $150, inducing the Great Recession.) So it's pretty safe to assume that we would once again get oil prices to $150+, & gasoline prices to $4.25-5.00/gallon.

THIS is what I think you are missing in your anti-corn ethanol argument against farmland/ag assets. In a vacuum, I agree with you that turning corn into fuel is silly. But we are not operating in a vacuum. We are operating in a post-peak cheap oil world, where we have conclusive proof that not using corn ethanol will lead to a collapse in the global economy b/c of the amount of debt that exists.

Bottom line: Farmland is one of the only assets whose revenues are tied explicitly to peak cheap oil prices, & whose cost is artificially subsidized by the US gov't by virtue of both Fed bond buying actions & by longstanding pro-farm ag lending subsidies. Give me another asset where you could borrow money for 25 years at a 4.5% fixed rate, & buy a peak cheap oil play, with only 35% down? And where you will NOT get a margin call EVER, as long as you keep making the monthly payment? I assure you your broker will NOT extend you that courtesy on shares of XOM, & let's not even get into oil futures in a post MF Global world!!

This means that as long as the US is structured as we are now to run on oil, $6, $8, $10, heck $12 corn will ALWAYS be more politically palatable than even $4.50 gasoline. In that world, farmland is no bubble.

Article from UK Telegraph re: spare oil capacity is below.

"We believe that OPEC spare capacity has already dropped below 2m bpd. The question therefore arises how much spare capacity is left to absorb potential supply disruptions in other countries," Goldman's Jeff Currie said.

http://www.telegraph.co.uk/finance/m...ears-thin.html

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

In your honest opinion, which scenario do YOU think is more politically palatable? $6 corn & $3.50 gasoline, or $2.50 corn & $8.00 gasoline? Knowing that the only 2x we've seen that at "only" $4.00 gasoline, the US economy has quickly tanked, leading to collapses in tax revenues & skyrocketing deficits? Corn ethanol subsidies suddenly look very "cheap"!

There are several problems with this statement, starting with the dichotomy of gasoline prices vs. corn.

1) You assume that the addition of ethanol reduces the price of gasoline, when in fact the links above show clearly that systemically the ethanol subsidies actually increase the overall price paid for energy - thus there is a direct link between the 2.

Saying ethanol reduces the price of gasoline is therefore incorrect.

If you meant to say ethanol reduces the trade deficit, this might be correct although the loss of corn exports makes this a problematic assumption.

2) You assume that the US can absorb any additional amount of ethanol production.

As the link above also clearly shows, barring an additional mandate above 10% allowable ethanol, existing capacity to introduce ethanol is already almost to the 10% level systemwide.

Over 10% - at least from what other documentation I have seen - you require significant retooling of engines to prevent corrosion. Thus an increase over MTBE10 to MTBE 15 would very possibly require large additional subsidies.

http://www.msnbc.msn.com/id/25936782...small-engines/

The export of ethanol is an interesting point - but then I wonder just how politically safe the idea is of subsidizing farmers and the ethanol industry to export.

3) As for farm land as an investment - my point all along has been to try and disassociate what portion of farm land prices are inherently better vs. what portion of farm land prices are there solely due to ZIRP/speculation, dollar depreciation, and so forth.

With gold you can see a clear differentiation between the behavior of gold vs. most other commodities.

With farmland - the association is far less clear. I've looked in detail over and over again into the various supposed 'unique' causes, but frankly have yet to see any beyond ethanol as being unique, and ethanol in turn is a purely US government driven situation which has a number of limitations as noted above as to its capability to continue to factor into corn.

You'll note that d&g never once noted ethanol as the single issue which does matter - at least until I brought it up.

For him it was all about BRIC demand for meat, water, population growth, etc etc - all of which are frankly nothing compared to ethanol.

EDIT: more info on ethanol in engines: http://www.popularmechanics.com/cars...-damage-engine

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

RE: "All the mandates for the future mean nothing in the face of ongoing deficits."

C1ue-

*snip*

THIS is what I think you are missing in your anti-corn ethanol argument against farmland/ag assets. In a vacuum, I agree with you that turning corn into fuel is silly. But we are not operating in a vacuum. We are operating in a post-peak cheap oil world, where we have conclusive proof that not using corn ethanol will lead to a collapse in the global economy b/c of the amount of debt that exists.

Bottom line: Farmland is one of the only assets whose revenues are tied explicitly to peak cheap oil prices, & whose cost is artificially subsidized by the US gov't by virtue of both Fed bond buying actions & by longstanding pro-farm ag lending subsidies. Give me another asset where you could borrow money for 25 years at a 4.5% fixed rate, & buy a peak cheap oil play, with only 35% down? And where you will NOT get a margin call EVER, as long as you keep making the monthly payment? I assure you your broker will NOT extend you that courtesy on shares of XOM, & let's not even get into oil futures in a post MF Global world!!

This means that as long as the US is structured as we are now to run on oil, $6, $8, $10, heck $12 corn will ALWAYS be more politically palatable than even $4.50 gasoline. In that world, farmland is no bubble.

Article from UK Telegraph re: spare oil capacity is below.

"We believe that OPEC spare capacity has already dropped below 2m bpd. The question therefore arises how much spare capacity is left to absorb potential supply disruptions in other countries," Goldman's Jeff Currie said.

http://www.telegraph.co.uk/finance/m...ears-thin.html

This was one of the top reasons I became a farmer -- Peak Oil. Food is fuel, fuel is food. And food keeps people from rioting like they did in the MENA region. c1ue can argue all he wants about energy efficiency of say biodiesel v. liquid fossil fuels, but if that's all you got, that's what you use. I wanted to makesure I either always had a fuel allocation, or could grow biodiesel if needed.

Your ethanol arguement is a great one because, assuming all your numbers are correct, pulling ethanol out of the mix would be a serious shock to the world system.

Personally, I just figure so long as DC is the fascist kleptocracy it is at present (and we see no real signs of change), then corn ethanol will continue to be "viable", as ridiculous as it is...

There are several problems with this statement, starting with the dichotomy of gasoline prices vs. corn.

1) You assume that the addition of ethanol reduces the price of gasoline, when in fact the links above show clearly that systemically the ethanol subsidies actually increase the overall price paid for energy - thus there is a direct link between the 2.

Saying ethanol reduces the price of gasoline is therefore incorrect.

If you meant to say ethanol reduces the trade deficit, this might be correct although the loss of corn exports makes this a problematic assumption.

2) You assume that the US can absorb any additional amount of ethanol production.

As the link above also clearly shows, barring an additional mandate above 10% allowable ethanol, existing capacity to introduce ethanol is already almost to the 10% level systemwide.

Over 10% - at least from what other documentation I have seen - you require significant retooling of engines to prevent corrosion. Thus an increase over MTBE10 to MTBE 15 would very possibly require large additional subsidies.

http://www.msnbc.msn.com/id/25936782...small-engines/

The export of ethanol is an interesting point - but then I wonder just how politically safe the idea is of subsidizing farmers and the ethanol industry to export.

3) As for farm land as an investment - my point all along has been to try and disassociate what portion of farm land prices are inherently better vs. what portion of farm land prices are there solely due to ZIRP/speculation, dollar depreciation, and so forth.

With gold you can see a clear differentiation between the behavior of gold vs. most other commodities.

With farmland - the association is far less clear. I've looked in detail over and over again into the various supposed 'unique' causes, but frankly have yet to see any beyond ethanol as being unique, and ethanol in turn is a purely US government driven situation which has a number of limitations as noted above as to its capability to continue to factor into corn.

You'll note that d&g never once noted ethanol as the single issue which does matter - at least until I brought it up.

For him it was all about BRIC demand for meat, water, population growth, etc etc - all of which are frankly nothing compared to ethanol.

EDIT: more info on ethanol in engines: http://www.popularmechanics.com/cars...-damage-engine

In response:

1) Higher ethanol IS harder on engines, especially rubber parts, but that won;t stop some bureaucrat from deciding it needs to go up as a % of the mix.

2. BULLSHIT. You have been all over the board on farmland as an investment, first attacking it on a credit basis, then trying to find ANYTHING else you could to attack it when I pointed out I personally could care less about credit, as I don't use it or need it.

3. BULLSHIT x2. You have shown a bias against farmland and NEVER EVER put up any kind of cohesive arguement against farmland as an investment for the long term. In my case Inoted WHY I PERSONALLY went into agriculture, and none of it hand anything to do with rising land prices. You are yet again dancing on the head of a pin looking for a way to save face after falling flat on it.

4. I never covered ethanol because MY FARMLAND IS NOT IN THE U.S. I also do NOT GROW CORN. But in your attempts to find any straw to grasp at, you found ethanol, and frankly, coohand just handed your hat to you -- yet again. yet somehow you think this is some kind of "win" for you?

[coolhand]

Re: 1 for D&G: A Bubble Down On The Farm?

There are several problems with this statement, starting with the dichotomy of gasoline prices vs. corn.

1) You assume that the addition of ethanol reduces the price of gasoline, when in fact the links above show clearly that systemically the ethanol subsidies actually increase the overall price paid for energy - thus there is a direct link between the 2.

Saying ethanol reduces the price of gasoline is therefore incorrect.

If you meant to say ethanol reduces the trade deficit, this might be correct although the loss of corn exports makes this a problematic assumption.

2) You assume that the US can absorb any additional amount of ethanol production.

As the link above also clearly shows, barring an additional mandate above 10% allowable ethanol, existing capacity to introduce ethanol is already almost to the 10% level systemwide.

Over 10% - at least from what other documentation I have seen - you require significant retooling of engines to prevent corrosion. Thus an increase over MTBE10 to MTBE 15 would very possibly require large additional subsidies.

http://www.msnbc.msn.com/id/25936782...small-engines/

The export of ethanol is an interesting point - but then I wonder just how politically safe the idea is of subsidizing farmers and the ethanol industry to export.

3) As for farm land as an investment - my point all along has been to try and disassociate what portion of farm land prices are inherently better vs. what portion of farm land prices are there solely due to ZIRP/speculation, dollar depreciation, and so forth.

With gold you can see a clear differentiation between the behavior of gold vs. most other commodities.

With farmland - the association is far less clear. I've looked in detail over and over again into the various supposed 'unique' causes, but frankly have yet to see any beyond ethanol as being unique, and ethanol in turn is a purely US government driven situation which has a number of limitations as noted above as to its capability to continue to factor into corn.

You'll note that d&g never once noted ethanol as the single issue which does matter - at least until I brought it up.

For him it was all about BRIC demand for meat, water, population growth, etc etc - all of which are frankly nothing compared to ethanol.

EDIT: more info on ethanol in engines: http://www.popularmechanics.com/cars...-damage-engine

It does reduce the cost of gasoline, b/c the supply of gasoline is 10% greater than it otherwise would be. It might increase the "overall price paid for energy" - you might be right, I've not done the math - but Americans & the American economy doesn't care about "the overall price paid for energy", or the "price of gasoline adjusted for the mileage hit when it is E-10." It cares about the price of gasoline. Americans aren't smart enough to figure out that their mileage is dropping with E-10 - they just know that gasoline is $3.40. This is basically evidence that the form of energy is as critical as the energy itself, & why oil is so unique.

It is liquid, portable, very stable (at least relatively speaking - ask the passengers on the Hindenburg if they would prefer a hydrogen or gasoline powered car)

You are correct on your point that mixes over E-10 would require significant adjustments to the system. Older cars, seals, two-stroke engines, refueling station holding tanks, pumps, seals - all would require adjustments for the increased corrosiveness of ethanol, and as such, a move from E-10 to E-15 doesn't seem very likely in the near term. Unless we have an unexpected fuel shock for whatever reason, and gasoline goes to $5.00/gallon, sustainably. That would change the political discussion quite a bit, IMO. And given depletion issues in the world's cheap oil fields, such an oil shock seems a matter of when, not if.

But to address your point - even if we don't get any more ethanol blending in the US above E-10, we are seeing growing corn ethanol exports (again, the energy form equation.) But even if we don't increase corn ethanol blending or exports, we are still running at the highest acreage in the US in history, at the highest 3-year average yields in history. WAY back in 2000, corn yields were 120 bu/acre. Last year, in a bad year, we did 148 bu/ac. What would happen to corn prices if corn yields had one year where they were 120 bu/ac like they were only 10 years ago?

Lastly - another reason why I like ag land so much - it is a play on global water shortages as well. Here's a little fact from the USDA: "27% of the irrigated crop land in the US draws on the Ogallala Aquifer". The Ogallala is depleting notably in areas. States like Nebraska would see massive losses in ag production if water was forced to be rationed out of the Ogallala Aquifer. What would happen to the price of corn & other grain crops if water started to be rationed in areas like Nebraska & Kansas? In a world where we can't cut ethanol production, where emerging markets are likely a continued draw on incremental grain supplies over the next X years, the world cannot afford any hiccups in ag production anywhere in the world ever again. Seems like a good place to put capital for the long run to me, esp since my land is in Ohio. No shortage of water here!

[Verrocchio]

Re: 1 for D&G: A Bubble Down On The Farm?

It does reduce the cost of gasoline, b/c the supply of gasoline is 10% greater than it otherwise would be. It might increase the "overall price paid for energy" - you might be right, I've not done the math - but Americans & the American economy doesn't care about "the overall price paid for energy", or the "price of gasoline adjusted for the mileage hit when it is E-10." It cares about the price of gasoline. Americans aren't smart enough to figure out that their mileage is dropping with E-10 - they just know that gasoline is $3.40. This is basically evidence that the form of energy is as critical as the energy itself, & why oil is so unique.

It is liquid, portable, very stable (at least relatively speaking - ask the passengers on the Hindenburg if they would prefer a hydrogen or gasoline powered car)

You are correct on your point that mixes over E-10 would require significant adjustments to the system. Older cars, seals, two-stroke engines, refueling station holding tanks, pumps, seals - all would require adjustments for the increased corrosiveness of ethanol, and as such, a move from E-10 to E-15 doesn't seem very likely in the near term. Unless we have an unexpected fuel shock for whatever reason, and gasoline goes to $5.00/gallon, sustainably. That would change the political discussion quite a bit, IMO. And given depletion issues in the world's cheap oil fields, such an oil shock seems a matter of when, not if.

But to address your point - even if we don't get any more ethanol blending in the US above E-10, we are seeing growing corn ethanol exports (again, the energy form equation.) But even if we don't increase corn ethanol blending or exports, we are still running at the highest acreage in the US in history, at the highest 3-year average yields in history. WAY back in 2000, corn yields were 120 bu/acre. Last year, in a bad year, we did 148 bu/ac. What would happen to corn prices if corn yields had one year where they were 120 bu/ac like they were only 10 years ago?

Lastly - another reason why I like ag land so much - it is a play on global water shortages as well. Here's a little fact from the USDA: "27% of the irrigated crop land in the US draws on the Ogallala Aquifer". The Ogallala is depleting notably in areas. States like Nebraska would see massive losses in ag production if water was forced to be rationed out of the Ogallala Aquifer. What would happen to the price of corn & other grain crops if water started to be rationed in areas like Nebraska & Kansas? In a world where we can't cut ethanol production, where emerging markets are likely a continued draw on incremental grain supplies over the next X years, the world cannot afford any hiccups in ag production anywhere in the world ever again. Seems like a good place to put capital for the long run to me, esp since my land is in Ohio. No shortage of water here!

C1ue, ethanol exports aside, do you see cropland in the US as a hedge against the expected loss of US dollar purchasing power? Say you had bid $8,000 for the Neponset tract. Conceivably, ten years from now you're paying off your mortgage with inflated bucks but you're selling your corn on the world market for $80 a bushel.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

It does reduce the cost of gasoline, b/c the supply of gasoline is 10% greater than it otherwise would be. It might increase the "overall price paid for energy" - you might be right, I've not done the math - but Americans & the American economy doesn't care about "the overall price paid for energy", or the "price of gasoline adjusted for the mileage hit when it is E-10." It cares about the price of gasoline. Americans aren't smart enough to figure out that their mileage is dropping with E-10 - they just know that gasoline is $3.40. This is basically evidence that the form of energy is as critical as the energy itself, & why oil is so unique.

It is liquid, portable, very stable (at least relatively speaking - ask the passengers on the Hindenburg if they would prefer a hydrogen or gasoline powered car)

You are correct on your point that mixes over E-10 would require significant adjustments to the system. Older cars, seals, two-stroke engines, refueling station holding tanks, pumps, seals - all would require adjustments for the increased corrosiveness of ethanol, and as such, a move from E-10 to E-15 doesn't seem very likely in the near term. Unless we have an unexpected fuel shock for whatever reason, and gasoline goes to $5.00/gallon, sustainably. That would change the political discussion quite a bit, IMO. And given depletion issues in the world's cheap oil fields, such an oil shock seems a matter of when, not if.

But to address your point - even if we don't get any more ethanol blending in the US above E-10, we are seeing growing corn ethanol exports (again, the energy form equation.) But even if we don't increase corn ethanol blending or exports, we are still running at the highest acreage in the US in history, at the highest 3-year average yields in history. WAY back in 2000, corn yields were 120 bu/acre. Last year, in a bad year, we did 148 bu/ac. What would happen to corn prices if corn yields had one year where they were 120 bu/ac like they were only 10 years ago?

Lastly - another reason why I like ag land so much - it is a play on global water shortages as well. Here's a little fact from the USDA: "27% of the irrigated crop land in the US draws on the Ogallala Aquifer". The Ogallala is depleting notably in areas. States like Nebraska would see massive losses in ag production if water was forced to be rationed out of the Ogallala Aquifer. What would happen to the price of corn & other grain crops if water started to be rationed in areas like Nebraska & Kansas? In a world where we can't cut ethanol production, where emerging markets are likely a continued draw on incremental grain supplies over the next X years, the world cannot afford any hiccups in ag production anywhere in the world ever again. Seems like a good place to put capital for the long run to me, esp since my land is in Ohio. No shortage of water here!

On the whole ethanol issue, you may find this 11 minute podcast on ethanol interesting:

http://brownfieldagnews.com/2011/12/...downs-in-2011/

Ethanol had many ups–and some downs–in 2011


December
21, 2011 By Ken
Anderson


Leave
a Comment





It’s been another interesting year for the ethanol industry. The approval
of E15, a new agreement with NASCAR, and continued profitability were all
positives. At the same time, the industry was frustrated in its legislative
efforts to redirect VEETC dollars towards infrastructure improvements. In this
interview with Brownfield’s Ken Anderson, Growth Energy CEO Tom Buis reflects on
the ups and downs of the past year.

and...

http://brownfieldagnews.com/2011/12/...orking-on-e15/

Ethanol industry still working on E15


December
21, 2011 By Ken
Anderson


Leave
a Comment





The process of getting E15 blended fuel to market is taking a little longer
than expected.

The U.S. EPA approved the higher ethanol blend in January of this year and
some were predicting that E15 would be available to motorists by fall or early
winter.

Growth Energy CEO Tom Buis says there is progress, but some regulatory
hurdles remain.

“We’re waiting on the final approval of the fuel registration,” Buis says.
“We had to submit health effects testing—the difference between E10 and E15 and
what comes out of the tailpipe. We’re waiting for EPA to grant us approval of
that so we can register the fuel.”

The next challenge, Buis says, will be marketing E15 to retailers and
motorists. “E15 is voluntary—and despite the critics who think it’s not—it is
(voluntary). It’s got to be marketed,” says Buis.

But once E15 is approved and out there—Buis says it will be “huge” for the
ethanol industry.

“That access to the marketplace that will follow will be the single biggest
event that’s occurred in this industry.”

E15 usage will be restricted to model year 2001 and newer vehicles. Buis
says that’s about 70 percent of the vehicles on the road today.

and this...

http://brownfieldagnews.com/2011/12/...and-expansion/

Ethanol not causing cropland expansion



December
23, 2011 By Ken
Anderson


Leave
a Comment






Remember those wild predictions that increased ethanol production would cause
farmers to tear up grassland and forests in order to plant more corn.

It even coined a new term—“indirect land use change”.

Well, a new, in-depth USDA analysis of U.S. land use patterns shows total
cropland in the U.S. actually decreased by 34 million acres from 2002 to
2007.

That’s the lowest level since USDA began collecting the data in 1945.



*snip*



Meanwhile, that USDA report shows a dramatic increase in urban sprawl. Land
in urban areas was estimated at 61 million acres in 2007, up almost two percent
since 2002 and 17 percent more than in 1990.

“It is ironic that the land use debate has fixated on biofuels, when the
actual culprit of land conversion has been urban and suburban sprawl,” Dinneen
says.

and, though not related to ethanol per se, this article tells c1ue he's all washed up. this one quotes the Univ. of Illinois, one of the largest ag schools in the country... seems they agree with Jim Rogers (and me)...

http://brownfieldagnews.com/2011/12/...r-crop-prices/

The University of Illinois says this is the “golden age” for crop farm prices
– that began in 2006 and will end sometime in the future. Led by increased use
of corn for ethanol production and sustained export demands for grain, corn and
soybean prices have reached high levels. That has led to higher net farm income
for grain farmers. AgriMarketing.com reports that it’s expected that net farm
income on grain farms in Illinois, on average, will top $200-thousand this year
because of high corn and soybean prices — that compares with around $66-thousand
just five years ago.


Over the past decade, the U of I says farms enrolled in Illinois Farm
Business Farm Management saw net farm income grow from an average $66-thousand
dollars between 2001 and 2006 to an average $177-thousand dollars per farm from
2006 through 2010.

Now I am sure c1ue thinks he is smarter than Jim Rogers (without the portfolio to prove it), coolhand, the UofI, me, and all the money all them farmers is makin' out there, right c1ue?

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

In the interest of fairness, i read today something that COULD be a game changer -- ethanol subsidies bye bye?

(OTOH, given "mandates" for 10% ethanol, plus some of what collhand wrote above, this could just lead to higher gas prices and consolidation in the industry.)

Certainly if they get E15 approved, none of this will matter at all. Anyway, onto the link...

http://www.greencarreports.com/news/...anol-subsidies

December 27, 2011
Corn Ethanol Pump


When the U.S. Congress adjourned for the holidays on Friday, December 23, its departure sealed the fate of subsidized ethanol production.
During its session, the Congress did not renew a tax break for U.S. production of corn-based ethanol that had become increasingly unpopular across a wide area of the political spectrum.

The tax credit amounted to 45 cents per gallon of ethanol that was blended into gasoline. It had been in place since 1980.

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

1) Higher ethanol IS harder on engines, especially rubber parts, but that won;t stop some bureaucrat from deciding it needs to go up as a % of the mix.

Certainly true. Of course, unlike straight farm subsidies, E15 has many industries lined up against it: oil companies, car companies, consumer groups.

2. BULLSHIT. You have been all over the board on farmland as an investment, first attacking it on a credit basis, then trying to find ANYTHING else you could to attack it when I pointed out I personally could care less about credit, as I don't use it or need it.

3. BULLSHIT x2. You have shown a bias against farmland and NEVER EVER put up any kind of cohesive arguement against farmland as an investment for the long term. In my case Inoted WHY I PERSONALLY went into agriculture, and none of it hand anything to do with rising land prices. You are yet again dancing on the head of a pin looking for a way to save face after falling flat on it.

Sorry, but you can scream all you like. The fact is you are a farmland cheerleader and keep trying to tout it.

As I've said before and I say again, as a business you can be quite successful no matter what the overall circumstances surrounding a given industry. However, you keep trying to say there are some special circumstances regarding farmland - and I've kept saying that these are neither special nor unusual.

You've yet to get around this point.

Credit - whether you use it or not - is a reality of life for the average farmer. Simply saying that you personally don't use it doesn't mean it doesn't have an effect on farm operations or farm land prices.

As for face, I personally don't care what you think. Frankly until I see a real point, I'm going to keep on combating your un-nuanced cheerleading because uncritical acceptance of 'facts' is exactly the tactic used by bubble promoters.

4. I never covered ethanol because MY FARMLAND IS NOT IN THE U.S. I also do NOT GROW CORN. But in your attempts to find any straw to grasp at, you found ethanol, and frankly, coohand just handed your hat to you -- yet again. yet somehow you think this is some kind of "win" for you

And yet you have no problem saying that corn exports to china will increase food prices, when in reality it is ethanol which is raising corn prices, and corn prices in turn affecting overall world food prices.

So who is trying to save face exactly?

It does reduce the cost of gasoline, b/c the supply of gasoline is 10% greater than it otherwise would be.

And if the subsidy per ethanol gallon is $1.02 while the inputs to corn hence ethanol are directly related to oil prices, what exactly is the cost benefit of this increased supply?

Not clear to me at all.

It is liquid, portable, very stable (at least relatively speaking - ask the passengers on the Hindenburg if they would prefer a hydrogen or gasoline powered car)

So are CNG and liquid to coal - both commodities of which the US has in abundance. The former increasingly due to fracking.

And given depletion issues in the world's cheap oil fields, such an oil shock seems a matter of when, not if.

While peak cheap oil seems clear, peak oil is not. The difference is crucial; we don't have a shortage on actual oil, it is simply that the price of what oil is available is higher thus many areas which depend on particularly cheap oil will be affected.

Note that US gasoline usage is falling much as it did during the post 1974 oil 'embargo'.

WAY back in 2000, corn yields were 120 bu/acre. Last year, in a bad year, we did 148 bu/ac. What would happen to corn prices if corn yields had one year where they were 120 bu/ac like they were only 10 years ago?

Given that the article above pointed out that ethanol producers are in a negative economic circumstance due to the high price of feedstock, I don't see how corn supply issues will make ethanol producers and/or consumers any better off.

And if there's already no economic benefit for ethanol even beyond the $1.02 subsidy, how are higher corn prices good for the ongoing growth of the ethanol industry in the US?

Lastly - another reason why I like ag land so much - it is a play on global water shortages as well. Here's a little fact from the USDA: "27% of the irrigated crop land in the US draws on the Ogallala Aquifer". The Ogallala is depleting notably in areas. States like Nebraska would see massive losses in ag production if water was forced to be rationed out of the Ogallala Aquifer. What would happen to the price of corn & other grain crops if water started to be rationed in areas like Nebraska & Kansas?

See above. And I repeat: an artificial demand for ethanol due to subsidies can easily be reduced, just as artificial demand for alternative energy solar PV and wind in Europe is being reduced as we speak.

C1ue, ethanol exports aside, do you see cropland in the US as a hedge against the expected loss of US dollar purchasing power? Say you had bid $8,000 for the Neponset tract. Conceivably, ten years from now you're paying off your mortgage with inflated bucks but you're selling your corn on the world market for $80 a bushel.

I would say that this could happen, but not so long as your inputs are oil dependent.

What good will it do you to be able to sell crops to the world when you have to buy fertilizers, tractor fuel, and pesticides based on imported oil anyway?

It would seem that you are then taking on massive supply chain risk: rapid changes in oil prices would translate quickly into fertilizer, fuel, and pesticide costs; unlike a pure commodity player a farmer has fixed timetables for usage.

Sure, you could mitigate this by playing the market, but now you're taking on commodity trading for your inputs on top of your operational risk and commodity trading for your outputs.

If you're that good a commodity trader, why bother with all the risk in between?

[Verrocchio]

Re: 1 for D&G: A Bubble Down On The Farm?

Actually, commodity producers have a distinctly different perspective on commodity markets than commodity traders, but this is beside the main point that you made. (Also, re your quarrel with d&g, the US ethanol subsidy and ethanol import tariff are off the table, as Congress failed to renew them just now.)

Your main point was that petroleum-based inputs to crop production cause farmers supply chain risks; however, governments have historically recognized agricultural production as a major national interest. The obvious example is gas rationing in the US during WWII. Farmers received sufficient extra rations of gas to plant, cultivate, and harvest their fields. So, looking forward, it may be unrealistic to describe the farmer as carrying "the massive supply chain risk" alone; more than likely, governments, both in the US and other countries, will see that maintaining the agricultural system is of very high priority. Granted, there will be a point on Hubbert's curve of dwindling oil production where this can no longer be sustained, but I assume that is beyond the scope of this discussion.

[doom&gloom]

Re: 1 for D&G: A Bubble Down On The Farm?

Actually, commodity producers have a distinctly different perspective on commodity markets than commodity traders, but this is beside the main point that you made. (Also, re your quarrel with d&g, the US ethanol subsidy and ethanol import tariff are off the table, as Congress failed to renew them just now.)

Your main point was that petroleum-based inputs to crop production cause farmers supply chain risks; however, governments have historically recognized agricultural production as a major national interest. The obvious example is gas rationing in the US during WWII. Farmers received sufficient extra rations of gas to plant, cultivate, and harvest their fields. So, looking forward, it may be unrealistic to describe the farmer as carrying "the massive supply chain risk" alone; more than likely, governments, both in the US and other countries, will see that maintaining the agricultural system is of very high priority. Granted, there will be a point on Hubbert's curve of dwindling oil production where this can no longer be sustained, but I assume that is beyond the scope of this discussion.

Some time ago in a "Jim Rogers" thread (where c1ue displayed his anti-ag bias to extreme), I posted the following:

Farming today is a "play" on many themes:

1) growing world population (IIRC about 93 million more per year)
2) increasing demand for meat products (3 - 7 grain inputs per 1 meat output)
3) decreasing advances in yields per science inputs (down to less than 1%/yr)
4) priority of fuel allocation in peak oil (starving people bring down governments)
5) shrinking arable land available for crop conversion
6) shrinking water tables in heavily groundpumped farmlands (Ogalalla Aquafier as example)
7) as throughout time, it is a "necessity" and part of the FEW (food, energy, water)
8) food is now being used for fuel (as ridiculous as we all think that is)
9) changing or erratic weather patterns affecting harvests reduce world outputs of grains

just a few things to think about before you pan ag as an investment.

This was MY list of reasons for investing agriculture.

Since that post c1ue has reached in every direction to pan the idea of ag as an investment. he has asked me to "prove" my thesis (some possible by looking at past and current world events, some not), while never disproving any of them. Now he has found ethanol and claims I have no idea what I am talking about, but fails to note I covered this in Item #8 in the JR post.

He has never been able to disprove anything.

You will note I covered your post in item #4.

One of the fun things about debating c1ue is the way he likes to put word in my mouth -- things like saying I calim farmland to be "special", certainly something I have never said, nor did I ever put forth in my thesis for why I personally got into farming.

Now time may tell me I am wrong, we shall see, but c1ue has yet to prove me wrong. In anything, he continues to boost my thesis FOR investing in ag, not against it. Too bad he cannot see that beyond the bias he claims I have -- his bias against farmland investing. There is certainly NOTHING in the thesis above he has yet to dis-prove.

But he keeps reaching for straws every which way because in c1ue's world, it is win at all costs. Too bad. His bias is turning him from a great long term opportunity. Not one that will "make you rich" like gold will, and not one of "private equity" that may pay off big in an aquisition,but one that is good for generations and will stand up against inflation better than many oter things when the time comes. Something my children will inherit, and I hope their children as well.

For generations, before the financialization of the world, land was the way to "get rich" over time, and landholders in the past (and even today) would expand their holdngs whenever possible. I have plenty of gold and silver, but I can't eat any of it. OTOH I can always eat what grows on my farms, or run cattle, sheep, pigs, etc. Farmland is "real". maybe one day c1ue will "get real" and understand it as well.

[c1ue]

Re: 1 for D&G: A Bubble Down On The Farm?

Actually, commodity producers have a distinctly different perspective on commodity markets than commodity traders, but this is beside the main point that you made. (Also, re your quarrel with d&g, the US ethanol subsidy and ethanol import tariff are off the table, as Congress failed to renew them just now.)

The difference between commodity producers and commodity traders is a relevant point. To some extent, any commodity producer must be prepared to engage in at least some commodity trading - or else net revenues would very conceivably be harmed by commodity price variations and/or price gaming from purchasers.

However, in the past the inputs to the commodity production process was relatively not one which farmers had to be concerned about. Large variation in feedstock prices into farming is a major change.

Of course this will eventually be handled - after all industries like mining have had to deal with energy input cost variability for a long time. In the meantime, however, circumstances could get quite uncomfortable.

As for the ethanol subsidy - as I noted previously: in an era of budget deficits and what not, any and every subsidy is going to be under tremendous pressure.

The ending of the 30 year ethanol tax subsidy and import tariff is in no way surprising to me, though apparently surprising others in this discussion.

Your main point was that petroleum-based inputs to crop production cause farmers supply chain risks; however, governments have historically recognized agricultural production as a major national interest. The obvious example is gas rationing in the US during WWII. Farmers received sufficient extra rations of gas to plant, cultivate, and harvest their fields. So, looking forward, it may be unrealistic to describe the farmer as carrying "the massive supply chain risk" alone; more than likely, governments, both in the US and other countries, will see that maintaining the agricultural system is of very high priority. Granted, there will be a point on Hubbert's curve of dwindling oil production where this can no longer be sustained, but I assume that is beyond the scope of this discussion.

This is an interesting consideration, but the problem outlined above is not one of supply.

The situation you described previously was a function of lack of supply; in these circumstances (and in a price diktat environment to boot), government provision for farming is logical.

Thus to translate the previous example (limited supply due to rationing, prices fixed) to our present situation (plenty of supply, prices varying wildly, no rationing) would seem a bad fit.

There are certainly programs which could be undertaken to try and ameliorate this new risk: federal energy price guarantees for fuel, for feedstock into fertilizers and pesticides, etc but I'd bet that we would need to see real suffering before these types of programs would even begin to be considered.

For generations, before the financialization of the world, land was the way to "get rich" over time, and landholders in the past (and even today) would expand their holdngs whenever possible.

Indeed, what you have noted is the real point: ag land as with any other 'real' asset is set up to perpetuate ownership via low carrying costs.

Ag land as with any other 'real' asset gets to enjoy asset price inflation without having to pay correspondingly increased taxes.

The low property taxes enjoyed by landowners is a result of FIRE; the present struggle over FIRE could have a tremendous impact on this particular feature.

Be that as it may, the original point still stands: your assertion was that there was some specific unique feature to ag land which made it a pre-eminent investment.

I have yet to see this successfully demonstrated.