If Western governments have any moral backbone they will at least jawbone pulling biofuel subsidies... this would cause backlash reaction in fertilizer even though biofuels are just a small piece of the puzzle. (again this is a minor risk at this point, especially with US elections coming but maybe Europe will react first?) While the biofuel situation is not the major driving factor of agflation that does not matter - perception is everything and go back to point (b) a lot of new investors to a hot sector who know little about the long term situation and just are going by sound bites "rice riots" "fertilizer is hot" "Neil Cavuto even likes fertilizer" - they will panic.
Now I should alter that slightly. I forgot how self serving we are... if people in 3rd world countries with names we cannot pronounce die from starvation - well that's not a big deal. However, if Joe Schmoe voter in local Congressional district has to pay 24% more for eggs, than it's a national disaster. So while I thought before 3rd world governments falling and/or seeing scores of deaths overseas might be the root cause for change, let's just simplify it to how things really work. People with funny names in countries 90% of Americans could not locate a map, be damned - but when voters who are the cause of a Congress person getting elected start raising a fuss, that's what really will make the difference.
As I wrote above, my thesis is when this day comes, and I truly believe it will come because my "World of Shortages" thesis dictates ever rising prices over the long run; as the global supply/demand dynamic for food is pure crisis mode - the fertilizer stocks will sell off. Not rooted mostly in reality... but on perception. But when you are down 25% overnight in a stock will you care why? So I am saying it now, as I said it a few weeks ago, as I said it a few weeks before that. That is a systematic risk - when the day comes - to anyone investing in fertilizer. People (including me) will take a hit. As whining people toss their stocks into the fire, saying "well this was all because of ethanol so I am out - fertilizer stocks suck", I'll be buying. And prospering in the years to come as ethanol is but a small part of the global food crisis. But the market lemmings don't have a timeline of over a week (they are already berating these stocks because they have dared to not go up for a full 7 days now!), and panic will hit all these newfound "fertilizer bulls, long and strong" blah blah. They'll be gone within hours of that announcement.
I have written countless times (you can search the site for term "boondoggle") that I believe this ethanol push has been as big of a boondoggle as Iraq. If not worse. It's a complete disaster with global implications and causing global suffering. It takes up more energy than it provides. If we converted our entire corn crop to ethanol it would provide a fraction of our energy needs. But instead of being forward thinking or progressive and subsidizing say solar farms, or geothermal, nuclear, or wind... we take the simple, and easy path that garner the most votes. This is symbolic of all the things wrong with our leadership aka "gas tax holiday for 3 months!" No long term solutions, only knee jerk reactions without considering unintended consequences.
Franklin, Jefferson, Hamilton must be rolling in their graves watching this unfold. Now we can watch the infighting play out until the next President ascends to the throne ...
- Senate Republicans on Monday asked environmental regulators to use their power to halt the country's ethanol output expansion plans amid rising food prices. Twenty-four Republican senators, including presidential candidate Sen. John McCain of Arizona, sent a letter to the Environmental Protection Agency suggesting it waive, or restructure, rules that require a five-fold increase in ethanol production over the next 15 years.
- Congress passed a law last year mandating a ramp-up to 15 billion gallons of corn ethanol by 2015 and 36 billion by 2022. But McCain and other Republicans said those rules should be waived to put more corn back into the food supply for livestock, and to encourage farmers to plant other crops.
- "This subsidized (ethanol) program -- paid for by taxpayer dollars -- has contributed to pain at the cash register, at the dining room table, and a devastating food crisis throughout the world," said McCain, in a statement.
- Despite tough rhetoric from lawmakers, analysts say Congress is unlikely to roll back such a popular program during an election year.
- Friedman, Billings, Ramsey & Co. analyst Kevin Book argued in a recent note to clients that Congress will not "turn on the corn belt" because of the significant number of votes held by ethanol-producing states. Ethanol subsidies could face greater risks, however, in 2009 and going forward, according to Book.
- Republican Sen. Charles Grassley of Iowa said Monday "ethanol is unfairly taking the brunt of the criticism" for escalating food prices. Grassley's home state is expected to produce a quarter of all U.S. ethanol this year.
- The EPA has the power to waive or restructure the requirements if they cause unintended harm to consumers or the environment.
- "We don't think it's the right move to make," said Liz Friedlander, a spokeswoman for the National Farmers Union. (why am I shocked by that statement, certainly an unbiased source?) The group has defended corn-based production of the alternative fuel, saying its impact on the rising food prices has been relatively small. Instead, it says food price inflation is mainly due to higher fuel prices, poor weather conditions and dwindling stockpiles of wheat and other crops. (all true... but those are not easily reversed, unlike the ethanol subsidy)
- The ethanol industry said Monday altering the biofuels mandate "would drive the price of oil and gasoline through the roof," according to Matt Hartwig, a spokesman for the Renewable Fuels Association. (as opposed to the rock bottom prices of today, for example?)
- Ethanol is "one of the only solutions for holding down the price of oil in the long-term," according to Jeff Broin, president and chief executive of Sioux Falls, S.D.-based Poet, the nation's largest ethanol producer. (the "only" solution.... got it... another unbiased source)
- The ethanol industry says ethanol and other biofuels account for just 4 percent of the price surge, while the Department of Agriculture says the figure is closer to 20 percent. (I don't know myself, but I am guessing somewhere in between. But Uncle Ben could probably be the cause of 20-30% ... why not ban Uncle Ben?)
