Meat Buying Sprees & Corn Subsidies – The Inevitable Failure of Government Programs

According to recent news reports the president pledged to purchase meat from so called drought stricken farmers:

President Barack Obama, campaigning in Iowa Monday, announced $170 million in government meat purchases to help farmers struck by drought, helping to send hog prices to a one-

The purchase of as much as $100 million of pork, $50 million of chicken, and $10 million each of lamb and catfish come on top of $30 million in assistance announced last week. Farmers and ranchers are struggling with the worst combination of heat and dryness since the 1950s, the administration said.

Obama said he also directed the Defense Department to speed up purchases and hold the meat for later use. The buying will help farmers, and the government will get a better price on products than if they were bought later, he said.

“We’ll freeze it for later — but we’ve got a lot of freezers,” Obama told supporters in Council Bluffs as he kicked off a three-day visit to Iowa, a swing state that is also the country’s leading producer of pork, soybeans, corn and ethanol. “That will help ranchers, you know, who are going through tough times right now.”

More than half the counties in the U.S. have been declared natural disaster areas by the Department of Agriculture, and 69 percent of the Midwest last week had moderate to exceptional drought, government data show. The price of corn, the main ingredient in livestock feed, has surged 57 percent since mid-June, reaching an all-time high of $8.49 a bushel on Aug. 10 on the Chicago Board of Trade.

These are of course old school vote buying tactics and the people he’s talking to know that.

Some more background on the development of corn and meat prices:

Corn Long Term:

corn-chart-long-term

Corn Short Term:

corn-chart-short-term

Corn prices have most recently reached record highs and so have beef prices. Corn prices and beef prices are linked because beef in the US is mostly corn fed.

High corn prices have recently impelled farmers to slaughter more cattle than normal in order to avoid having to buy corn to feed them.

What’s behind the ever rising corn prices? Simply put, it’s government subsidies. But those have existed for a while, and have of course, coupled with sugar tariffs, lead to virtually universal use of corn syrup in processed food in the US, leading to a globally unmatched obesity epidemic.

So what has happened recently to step it all up a notch? Sure, we hear a lot about a nature made drought. However, those who dig a little deeper will find shocking numbers:

But nature is not the biggest factor in this crisis — the government is. Specifically, the federal government’s ethanol mandate, which requires that 13.2 billion gallons of corn-based ethanol be produced in 2012.

Thanks to the ethanol mandate, more than 40 percent of the nation’s corn crop now goes into the production of a useless fuel that hardly anyone would buy if the government didn’t require it. That’s up from just 17 percent in 2005, before the mandate went into effect. Only 36 percent of the corn crop now goes for feed, and 24 percent goes for food.

Here is the EPA’s own wording on the Renewable Fuel Standard

The RFS program was created under the Energy Policy Act (EPAct) of 2005, and established the first renewable fuel volume mandate in the United States. As required under EPAct, the original RFS program (RFS1) required 7.5 billion gallons of renewable- fuel to be blended into gasoline by 2012.

There you have it. Today 40% of all US corn production goes towards the production of ethanol fuels. It’s certainly a profitable racket for the Big Corn, but as it always goes with government programs – they make the majority poorer and poorer (and in this case unhealthier and fatter), while making the connected minority richer and richer.

Regarding the government’s efforts to buy up commodities in times of hardship, I would like to remind my readers once again of my post The Great Depression – Now and Then, in particular the Hoover administration’s until then unprecedented government spending programs that were instrumental in bringing about The Great Depression:

  • In June 1929, the Agricultural Marketing Act is passed, establishing the Federal Farm Board (FFB), furnished with $500 million by the Treasury to make all-purpose loans to farm cooperatives at low interest rates and to establish price stabilization corporations with the objective to artificially keep up farm prices
  • On October 26th 1929 the newly established FFB launches a program to lend $150 million to wheat coops and establishes the Farmers’ National Grain Corporation with $10 million capital; as farm prices continue to fall, the Farmers’ National itself begins to buy up wheat to keep up prices; the inevitable fall of prices is thus postponed as farmers are encouraged to keep producing surpluses; in 1930 prices continue to fall as the FFB keeps accumulating wheat surpluses
  • In spring of 1930 Hoover acquires from Congress an added $100 million in order for the FFB to continue lending and buying and establishes the Grain Stabilization Corporation (GSC) to replace Farmers’ National and redouble price stabilization efforts
  • By June 30 1930 the GSC has accumulated over 65 million bushels of wheat held off the market; prices continue to fall
  • On November 15, the GSC is authorized to purchase as much wheat as necessary to stop any further decline in wheat prices and buys up another 200 million bushels until mid 1931; prices continue to fall
  • The FFB finally decides to dump the excess stock abroad and prices fall even more drastically, the entire operation significantly postponed the necessary correction and prolonged the depression
  • By the end of the Hoover administration the FFB has incurred cotton and wheat losses of over $300 million
  • Other programs launched by the FFB that either failed in the same manner or proved impractical from the outset: Cotton Stabilization Corporation, National Wool Marketing Corporation, National Livestock Marketing Association, California Grape Control Board

Those who don’t learn from history are doomed to repeat it.

Before 2008 government programs lead to record home prices. When the crash came, people were told that government programs were needed to fix the crisis.

When the new commodity bubble that has been blown up by all the current dumb-ass government programs bursts, prices will come crashing down much more severely than they would right now if bureaucrats were to allow peaceful and voluntary individuals qua their own actions to direct producers how much of what they actually need produced, you know, this thing called the market.


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