Wednesday, June 11, 2008

Food Prices & Congress: A Really Bad Mix, Part I

As congress tries to get a new Farm Bill through and around President Bush (hopefully, he will veto it), American's should all be holding their breath and their wallets. Usually when politicians screw around with the market we lose, and this is no different. BTW, if he does veto it, they will just come back again and again, both parties.

A brief history is in order.

During the early part of the 20th century farming really took off, and in no time we were the envy of the world in agriculture production. Humans are known to mess up a good thing, this was no exception. Corn, even then, was the crop of choice. Lots of bucks per acre, so why not plant it year after year. There is a bad problem with that. Corn depletes the soil of nitrogen rapidly, making each successive year less productive.

Now combine that with the worst series of droughts in decades and you have several Midwest states turn into a "dust bowl" and people move to California. Before and after that, when it did rain, the top soil washed into the Mississippi and helped make the delta in Louisiana the huge place it is today. People back then commented on the river being too thick to drink and too thin to walk across. I was there in 1967 and it was still very muddy. Only recently has this begun to correct itself.

After the war and through the mid-fifties a couple of innovations changed everything. The first was crop rotation.

This is a simple concept, but it did take some promotion to get farms to utilize it. The first year you plant corn. The second year you plant a cereal crop like oats, wheat, or rye along with grass seed, such as timothy, clover, alfalfa, or trefoil. Therefore, in the third and fourth years you harvest hay. The grasses help stabilize the ground to prevent runoff, and also help replenish the nitrogen. The problem in many eyes was that you could only plant corn or wheat in two out of four years.

Later, the big farms just used mountains of fertilizer to eliminate some of the grass years. Of course that causes a lot of phosphate problems in the run-off. Some of that was controlled by not plowing the fields and planting the new seed into the unturned ground after the cereal crops were harvested so the soil would remain relatively stable.

The second development was hybrid seeds. By combining species of corn that were very productive with those that were disease and infestation resistant increased crop sizes dramatically. This occurred with most crops and continues today.

All of this was good for everyone, right? Not!

I could write volumes on this (there are already plenty out there, if you want to read them), but just understand this. No matter what is going on, someone is always unhappy, and usually those who bitch the loudest get the attention of congress.

By the late 1950's production was so good that farm prices dropped precipitously. We were feeding a big portion of the world but many farmers just couldn't make ends meet.

Now the natural, free market way out of this is that the weakest perish and the strongest survive. The very people who promote Darwinian theory (I'm one of them) are many of those who want to interfere with the process (I'm not one of them!).

The first farm stabilization and subsidy bill was passed and for the first time I know in history, we paid farmers not to grow food. An unbelievable concept, but it is still there today.

I can clearly remember my grandfather saying that it was the beginning of the end, and time has proven him right.

Government (the Feds) paid farmers not to produce, bought up extra milk solids and threw away the rest (then gave the cheese away to welfare recipients and schools), and added tariffs on rice, sugar, cotton, and a ton of other crops. The bottom line is today you pay $5-$10 a pound for cheese instead of $2 a pound, 50 cents a pound for sugar instead of the world price of 8 to 10 cents, and on and on.

PLUS, you are taxed more to pay for all of it. So as usual you pay not once, but twice, and even more times.

Obviously we are only skimming the surface of this, but I think you get the idea so far. Next time, we'll see how this directly affects you today.

Always learn, prepare, and be mentally ready,

The Hammer

Copyright Crickard Publishing 2008. All rights Reserved


At 5:18 PM, Blogger Cy said...

This also brings to mind the push for Ethanol to run our autos. As soon as I heard this I know that this foolish notion would drive up the cost of corn, make every farmer produce more corn to take advantage of the much higher corn prices, and cause a shortage of wheat and corn for human consumption.
Has that occured? You better believe it has. If not now, eventually the ethanol will cost as much as gasoline because of the cost of corn and the pocessing of the corn and transportation of the same.
Are we ahead any with an alternative fuel? HA, HA, HA!


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