If automakers are lining up at the trough, why not Big Agra?
Scott Irwin alerts me to this story from DomesticFuel.com:
Ethanol plants that have been hurt by dramatic fluctuations in commodity prices this year could be eligible for assistance from the US Department of Agriculture.
Secretary of Agriculture Ed Schafer told reporters after an address to the World Food Prize breakfast in Des Moines Friday that “some plants are under pressure because they’ve been speculating on corn.”
Schafer said there are USDA programs that could, for example, help the companies refinance and reduce their interest rates on operating expenses such as corn purchases. USDA’s Rural Development Program can lend up to $25 million to refinance or loan guarantees. “We have several ways we can help with dollars in rural areas,” Schafer said.
Some ethanol companies, most notably VeraSun, speculated on corn prices during the summer and locked in prices when corn was at $7 per bushel and now cash prices are about $3.50 per bushel, causing some significant losses. “There is going to have to be some credit applied to companies to buy some lower-priced corn to blend with their higher-priced corn obligations,” Schafer said.
Is risk and reward (punishment) still an important concept in market economics? Everybody wants help from the government when their plans go wrong. It’s ridiculous.
Daniel,
I don’t see where this has anything to do with market economics. Does anyone know what the market is anymore? It seems today it is what ever the government says it is.
First there was Compassionate Conservatism, now there’s Socialist Conservatism, I guess conservatism is just whatever the party in power says it is as well.
What’s interesting is that my grocery bills haven’t fallen with the agriculture futures. Every investor that wanted to hedge against high food prices by buying agriculture futures got slammed into the ground by futures market manipulation.
This is very similar to the precious metals futures that are out of whack compared to the physical market. I think the paper market disconnect is going to end very badly.
This is a good article on the COMEX gold market… http://www.bearmarketinvestments.com/gold-2
If government can truly manipulate things to a desired end, then centuries of economic theory are
invalid and there are no economic ‘laws’.
A growing concern here in the Northeast U.S. is homeowners who locked in home heating oil prices at over $4 per gallon for the upcoming winter. CT law requires oil suppliers to buy future contracts to support the contracts they made with homeowners. Heating oil prices have dropped around $2 per gallon. Do we bailout these people too?
This whole mess (in my opinion) is caused by some economist (including the Maestro and Big Ben) who still teach and preach old gold standard, mercantilist economics and act accordingly.
they hedged the corn price but not the ethanol price. really smart
The USA suffers much criticism in the 3rd or developing world and professional development circles for its generous subsidization of the agricultural sector. Cutting agricultural and ethanol subsidies at the beginning of a presidential mandate would be the logical thing to do, and would free up funds for better targeted fiscal ‘stimulus’.
Of course Big Auto and Big Agra have their hands out. Soon it will be teachers, farmers, “public interest” lawyers, and just about everyone else. Once you’ve said yes to the billionaires on Wall Street, how can you refuse to help more sympathetic characters, which pretty much includes everyone but twice-convicted child molesters?
We appear to be headed for banana republichood.
S we subsidize corn farmers to plant more corn for ethanol to make ethanol cheaper. Then when the corn is cheaper, we subsidize the ethanol companies who bet that corn would be more expensive.
It sounds like I get to pay for the same bushel of corn three times – once when the farmer grows it, another time when the ethanol producer gambled on it, and another time when I put it into my gas tank. No wonder my family budget is blown! When do I get subsidized?
It seems there was a good deal of speculating going on from from house prices to commodities and even financial instuments. Some of these bets turned out to be large and with borrowed money. In the end these speculators found out that the future can be murky and that they can not see thru buildings or around corners. I do wonder if my recent losses in Las Vegas might be covered by one of these goverment agencies. Some of the losses ended up on my credit card and the 20% interest is killing me.
Referred (and linked to) this post in a post of my own at the blog (cut and pasted below):
Remember when I made the bold prediction that once the principle was established that a company’s suffering constituted a blank check on the resources of others, we would see the number of needy demanding help multiply?
That turned out to be pretty much spot on–but of course it had the advantage of being a backward looking statement.
I noted the above in the comments section after pointing to a news story in the WSJ that started like this: “Having seen the way Washington has bowed to rescue the mortgage industry and Wall Street, why shouldn’t auto makers give it a try?”
EconBrowser recently led off a discussion on ethanol producers asking for government money with the following question: “If automakers are lining up at the trough, why not Big Agra?” I think we can all see the direction this is heading. I’m just wondering where it stops.