Friday, October 14, 2011

Corn as a Weapon of Mass Destruction

The number of people seeking unemployment compensation declined slightly last week but remains stubbornly above the magic 400,000 level that is regarded as the breakeven point on job creation.

Business statistics for August were all positive with substantially improved sales at the factory and wholesale levels. Inventories continued to increase for the 20th straight month indicating an overall positive business climate looking forward. Retail sales jumped 1.1% in September, almost double what economists were predicting. Ten of thirteen retail categories were up, led by auto sales and clothing retailers who also saw a big increase. The numbers were good enough to spark a 4% run up in commodity prices.

China appears to be getting a handle on inflation, now down to 6% for September. This news and a slightly more hopeful outlook concerning the Euro zone banking crisis helped drive the dollar down against the Euro which also pushed up oil prices. The USDA announced that China will buy 35 million bushels of corn this season despite China having a record crop itself. China is having a problem with food price inflation and needs to increase grain stockpiles.

Until 2009, China was a net exporter of corn but can’t keep up with the demand where it’s used mostly for hog feed. The US produces about 12 billion bushels, so China’s purchase amounts to 0.3% of production but this was still enough to push the corn price on the Chicago Board of Trade up a dime. This represents 1.2 billion dollars across the entire US market.

About 30% of China’s corn crop is used for manufacturing, mostly to make alcohol and starch which are complimentary processes. China and the US have about the same acreage dedicated to corn production but the US produces twice the total bushels, China is however well into a modernization program.

Much is made about China’s huge population, estimated to be four times that of the US, but China isn’t dependent on grain exports to bring in cash the way the US is. China is developing new food production in Africa as well as major trade deals with Brazil, and unlike the US, China can pay for what it wants with manufactured goods and technology development deals.

The US has long used grain as a weapon, destabilizing governments and forcing the migration of hungry people. The entirety of the US “illegal” immigrant problem represents the results of using corn as weapon to displace 8 million Mexican farmers by way of NAFTA. By dumping corn into Mexico at half price, American companies like Cargill drove the people off their land. Coincidently the same companies were on hand to recruit them to work in their US processing plants. Corn is no longer cheap in Mexico as it is now imported from the US at much higher prices. It’s called capitalism, get used to it or fight back.