The Tortilla Crisis

Colorado-Valley · **Joined:** Mon Aug 16, 2004 12:00 am **Posts:** 740

A magazine column I just wrote:

The Tortilla Crisis

By DON OLSEN

Well, I told Cindy I would try to write something about the looming corn crisis without getting too apocalyptic.

So I’ll say this: Small farmers and ranchers may be about to become very prosperous, at least in the short term ... and maybe even the long term.

Here’s the deal. This year about 17 percent of the North American corn crop went to making ethanol for the continent’s millions of cars and trucks. Next year about 50 percent of the crop is slated for ethanol, and in two years, if all the new distilleries planned are built, 90 percent of the corn crop will go to make fuel for cars. It wouldn’t come near replacing oil, but it might help keep prices down as petroleum gets more scarce.

Already in Mexico there is a food crisis because of the rising cost of corn needed to make tortillas, a staple of the Mexican diet, especially among its poorer people. Last week, 75,000 Mexicans protested the rising corn prices, but I’m not sure what the Mexican government can do about it. Should they politely ask Americans to quit driving their cars?

So I’ve been wondering if we should raise some corn on our ranch in an effort to help the starving Mexican people, as well as maybe make some big money, thanks to the current government-subsidized-ethanol mania.

My dad has always liked growing corn, but usually as silage feed for his Angus beef cattle. But he also has an antique 1950s-era John Deere combine, and he says that one year he used the little machine to combine corn. Just raise the header, open the drum and reinforce the blades. Voila! Shelled corn.

On the other hand, it might be easier to just keep raising cattle, because if all the corn is going to make ethanol, then the nation’s massive industrial feedlots won’t have any corn to feed and they will have to go out of business. Darn! Then the McDonald’s corporation will have to buy beef from us grass ranchers at very exhorbitant prices. Either that or the American consumer will have to go vegetarian and eat soybean burgers. Do you really believe that’s going to happen?

But back to Mexico. The country’s other big problem is that the Canterell oil field, the second largest in the world, has suddenly gone into rapid decline. This means that the Mexicans won’t have any food or gasoline or oil to export to North America. Currently, Mexico is the second largest exporter of oil to the United States, so that means that even more corn, and soybeans, and canola, and whatever else can be made into fuel will be appropriated for cars and trucks as Mexico’s oil disappears.

I can see it now: any conservation-reserve prairie in the Midwest, any hay field in the mountain region, any large row-crop farm in the Imperial Valley will be used to try to grow fuel crops to take advantage of government subsidies. That will make the price of food go up all over the world.

So that’s why I think small farmers and ranchers may do very well in the future. They’re sitting on what is suddenly very valuable topsoil.

Can we really feed seven billion people plus turn all our crops into fuel for cars? Well ... I suppose we’re going to try.

Time to fire up the antique combine.

eastbay · **Posted:** Wed Feb 07, 2007 4:11 am

Excellent!!!

What magazine will this appear in??

Bas · **Posted:** Wed Feb 07, 2007 4:18 am

poor countries have been complaining about the european and US farmsubsidies for a long time, looks like we can let go of them soon. And sure we will have some short term market adjustments but in the end the poor countries that have nothing besides agricultural products to export will be better off.

And no we can never replace all the oil with ethanol, but every percent counts.

MrBill · **Posted:** Wed Feb 07, 2007 4:35 am

Bas wrote:

poor countries have been complaining about the european and US farmsubsidies for a long time, looks like we can let go of them soon. And sure we will have some short term market adjustments but in the end the poor countries that have nothing besides agricultural products to export will be better off.

And no we can never replace all the oil with ethanol, but every percent counts.

and is is a global phenomenon from Brazil to Borneo too

Quote:

Malaysia is the largest palm oil producer in the world and has been keen in recent years — since global crude oil prices began to rise — to develop and use biofuel, a mix of palm oil or palm oil waste and diesel, instead of gasoline.

The Malaysian Palm Oil Board has said the fruit's oil on its own or in diesel mixtures has been used to power private vehicles since 1984. Some palm oil factories in rural plantations have used the waste from processing edible oil to run their tractors or other equipment.

A Malaysian company also announced last year that it was building the world's first plant to commercially produce ethanol from local nipah palm trees, with the product aimed mainly for export to countries looking for alternatives to gasoline.

Malaysia opens plant that makes electricity from palm oil waste

and Zimbabwe is a clear example of what failure, corruption and incompetence can bring...

Quote:

For close to seven years, Zimbabwe's economy and quality of life have been in slow, uninterrupted decline. They are still declining this year, people there say, with one notable difference: The pace is no longer so slow.

Indeed, Zimbabwe's economic descent has picked up so much speed that President Robert Mugabe, the nation's ruler for the past 27 years, is starting to lose support from parts of his own party.

In recent weeks, the national power authority has warned of a collapse of electrical service. A breakdown in water treatment has set off a new outbreak of cholera in the capital, Harare. All public services were cut off in Marondera, a regional capital of 50,000 in eastern Zimbabwe, after the city ran out of money to fix broken equipment. In Chitungwiza, just south of Harare, electricity is supplied but four days a week.

The government awarded all civil servants a 300 percent raise just two weeks ago. But the increase is only a fraction of the inflation rate, so the nation's 110,000 teachers are staging a work slowdown for more money; measured by the black-market value of Zimbabwe's ragtag currency, even their new salaries total less than $60 a month.

Economic free fall in Zimbabwe

fletch961 · **Joined:** Sun Jun 05, 2005 12:00 am **Posts:** 93

Quote:

Here’s the deal. This year about 17 percent of the North American corn crop went to making ethanol for the continent’s millions of cars and trucks. Next year about 50 percent of the crop is slated for ethanol, and in two years, if all the new distilleries planned are built, 90 percent of the corn crop will go to make fuel for cars. It wouldn’t come near replacing oil, but it might help keep prices down as petroleum gets more scarce.

I love when people make up numbers. Unless of course you can provide a source that says we will use almost 6 billion bushels of corn for ethanol next year and over 10 billion the year after.

Aaron · **Posted:** Wed Feb 07, 2007 5:32 am

Quote:

Meat producer Tyson warned the diversion of corn from animal feed into fuel production could result in consumers paying “significantly“ more for food at supermarkets and restaurants.

http://www.cattlenetwork.com/content.as ... tid=101530

Quote:

"If government continues to push corn out of livestock and poultry feed and into the energy supply, the cost of producing food will only increase," said William Roenigk, the group's chief economist.

http://www.newsmax.com/archives/article ... shtml?s=lh

Quote:

The 60-billion-gallon goal - and 35-billion-gallon interim target - are probably also unrealistic. Until now, most ethanol has been made from corn. Ethanol receives heavy federal subsidies. Oil refiners that blend it with gasoline get a 51-cents-per-gallon tax credit.

Quote:

Already, production of ethanol from corn has surged from 1.6 billion gallons in 2000 to 5 billion in 2006.

Quote:

Suppose we reach the administration's ultimate target of 60 billion gallons in 2030. That would offset less than half the projected increase in annual oil use by then. Here's why. First, it's necessary to convert the 60 billion gallons into barrels. Because there are 42 gallons in a barrel, that means dividing by 42. Further, ethanol has only about two-thirds the energy value of an equal volume of gasoline. When you do all the arithmetic, 60 billion gallons of ethanol displace just under 1 billion barrels of gasoline. If that merely offsets increases in oil use, it won't cut existing import dependence or greenhouse gases.

http://www.billingsgazette.net/articles ... ofuels.txt

Quote:

"That's because ethanol cannot be produced in sufficient volume to significantly affect global demand for other liquid fuels," he said. "If all of the corn produced in America in 2005 were dedicated to ethanol production, it would have reduced U.S. demand for gasoline by, at most, 12 percent."

http://www.jsonline.com/story/index.aspx?id=556418

Quote:

Ethanol production is heavily subsidized to keep it affordable. One study says that federal and state subsidies in 2006 were as high as $6.8 billion and will increase to $8.7 billion this year.

http://www.jsonline.com/story/index.aspx?id=556418

You guys do know about Google right?

Bas · **Posted:** Wed Feb 07, 2007 5:41 am

MrBill wrote:

and is is a global phenomenon from Brazil to Borneo too

Quote:

Malaysia is the largest palm oil producer in the world and has been keen in recent years — since global crude oil prices began to rise — to develop and use biofuel, a mix of palm oil or palm oil waste and diesel, instead of gasoline.

The Malaysian Palm Oil Board has said the fruit's oil on its own or in diesel mixtures has been used to power private vehicles since 1984. Some palm oil factories in rural plantations have used the waste from processing edible oil to run their tractors or other equipment.

A Malaysian company also announced last year that it was building the world's first plant to commercially produce ethanol from local nipah palm trees, with the product aimed mainly for export to countries looking for alternatives to gasoline.

Malaysia opens plant that makes electricity from palm oil waste

ah yes, they are selling "green" energy in holland that was produced burning palm oil and now people started protesting because rainforests in borneo have been chopped down to produce that palm oil.

Still all in all higher crop prices is what alot of people having been waiting for a long time; Let's drop those farm subsidies!!!

the environment however will feel increased pressure, thinking about it; maybe the next WTO talks should be about protecting forests in exchange for the dropping of western agricultural subsidies but I'm not sure (I doubt it actually) if that's going to work.

Bas · **Posted:** Wed Feb 07, 2007 6:01 am

Aaron wrote:

60 billion gallons of ethanol displace just under 1 billion barrels of gasoline.

This is reader deception, I don't think I have to explain why.

Aaron · **Posted:** Wed Feb 07, 2007 6:03 am

Bas wrote:

Aaron wrote:

60 billion gallons of ethanol displace just under 1 billion barrels of gasoline.

This is reader deception, I don't think I have to explain why.

I'm afraid you will

Bas · **Posted:** Wed Feb 07, 2007 6:09 am

well, it fooled me.

and they should convert it to barrels/a day cuz I don't do yearly stuff.

oh and it does cut import because if ethanol is cost effective the oil import would already be shrinking, so it would only be shrinking faster.

PS wow that was confusing [smilie=5baby.gif]

Aaron · **Posted:** Wed Feb 07, 2007 7:05 am

Bas wrote:

well, it fooled me.

and they should convert it to barrels/a day cuz I don't do yearly stuff.

oh and it does cut import because if ethanol is cost effective the oil import would already be shrinking, so it would only be shrinking faster.

PS wow that was confusing [smilie=5baby.gif]

Ummm... huh?

Quote:

Ethanol production is heavily subsidized to keep it affordable. One study says that federal and state subsidies in 2006 were as high as $6.8 billion and will increase to $8.7 billion this year.

MrBill · **Posted:** Wed Feb 07, 2007 7:07 am

Bas wrote:

Quote:

ah yes, they are selling "green" energy in holland that was produced burning palm oil and now people started protesting because rainforests in borneo have been chopped down to produce that palm oil.

Still all in all higher crop prices is what alot of people having been waiting for a long time; Let's drop those farm subsidies!!!

the environment however will feel increased pressure, thinking about it; maybe the next WTO talks should be about protecting forests in exchange for the dropping of western agricultural subsidies but I'm not sure (I doubt it actually) if that's going to work.
_________________

What I did not realize until I saw it on Phoenix (the German equivalent of the History Channel) was that the palm nut tree found in Malaysia is not indigenous, but comes from somewhere else - central America I think? Well, thanks to colonialism Malaysia inherited what is now a very valuable commodity. That and the rubber tree originally from Brazil.

The monoculture aspect aside it appears that palm plantations are very sustainable. They are contantly harvesting mature trees and replanting. About cutting down trees in Borneo I am not sure that is to expand those plantations or simply the illegal logging that takes place through-out Asia in any case? Many of the fires that caused severe air quality problems in the region stemmed from illegal logging or land clearing in any case. But more so in Indonesia.

Bas · **Posted:** Wed Feb 07, 2007 7:07 am

Quote:

Suppose we reach the administration's ultimate target of 60 billion gallons in 2030. That would offset less than half the projected increase in annual oil use by then. Here's why. First, it's necessary to convert the 60 billion gallons into barrels. Because there are 42 gallons in a barrel, that means dividing by 42. Further, ethanol has only about two-thirds the energy value of an equal volume of gasoline. When you do all the arithmetic, 60 billion gallons of ethanol displace just under 1 billion barrels of gasoline. If that merely offsets increases in oil use, it won't cut existing import dependence or greenhouse gases.

Bas · **Posted:** Wed Feb 07, 2007 7:14 am

MrBill wrote:

Bas wrote:

Quote:

ah yes, they are selling "green" energy in holland that was produced burning palm oil and now people started protesting because rainforests in borneo have been chopped down to produce that palm oil.

Still all in all higher crop prices is what alot of people having been waiting for a long time; Let's drop those farm subsidies!!!

the environment however will feel increased pressure, thinking about it; maybe the next WTO talks should be about protecting forests in exchange for the dropping of western agricultural subsidies but I'm not sure (I doubt it actually) if that's going to work.
_________________

What I did not realize until I saw it on Phoenix (the German equivalent of the History Channel) was that the palm nut tree found in Malaysia is not indigenous, but comes from somewhere else - central America I think? Well, thanks to colonialism Malaysia inherited what is now a very valuable commodity. That and the rubber tree originally from Brazil.

The monoculture aspect aside it appears that palm plantations are very sustainable. They are contantly harvesting mature trees and replanting. About cutting down trees in Borneo I am not sure that is to expand those plantations or simply the illegal logging that takes place through-out Asia in any case? Many of the fires that caused severe air quality problems in the region stemmed from illegal logging or land clearing in any case. But more so in Indonesia.

The plantations may be sustainable, but they are not sustaining the endangered orang oetangs. Those kind of forests, and I don't want to sound sentimental, but surely we can't understand their value with our economic brains alone.

MrBill · **Posted:** Wed Feb 07, 2007 7:29 am

Bas wrote:

Quote:

Suppose we reach the administration's ultimate target of 60 billion gallons in 2030. That would offset less than half the projected increase in annual oil use by then. Here's why. First, it's necessary to convert the 60 billion gallons into barrels. Because there are 42 gallons in a barrel, that means dividing by 42. Further, ethanol has only about two-thirds the energy value of an equal volume of gasoline. When you do all the arithmetic, 60 billion gallons of ethanol displace just under 1 billion barrels of gasoline. If that merely offsets increases in oil use, it won't cut existing import dependence or greenhouse gases.

Current unleaded gasoline demand in the USA is approximately 9 mbpd, but we can round it up to 10 mbpd.

That is including discretionary driving and not factoring demand destruction from higher prices or efforts to mitigate demand like public transport, car pooling and other voluntary measures. Or those done out of necessity.

If we accept that 60 billion gallons of ethanol will offset one billion barrels of gasoline that is 100 days of demand. About 25% of total demand. Demand destruction may account for another 25% of total demand. Then higher prices, demand destruction and ethanol is all of a sudden accounting for 50% of total current demand.

That is a start in the right direction in my opinion. Any forecasts for increased demand in the face of a drop in supply of gasoline or dramatically higher prices cannot be taken at face value. Bottom line. If you do not have any gasoline or a substitute you will not be driving.

I think we all accept that corn to ethanol using existing technology is not the answer to our transportation problems post peak oil decline. But cellulosic ethanol made using stationary power and better technology to improve the net energy yield may keep some of our necessary infrastructure working while high prices and its demand destruction effects weed out non-essential energy consumption.

But as it is we can almost guarantee higher food prices as bio-mass for fuel competes with livestock feed and crops grown for human consumption. That is a trade-off.

The Tortilla Crisis

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