How to solve the oil problem: Do something about it

Witness Walter Lukken of the Commodity Futures Trading Commission (CFTC) testified before the House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies. Lukken tried to explain the multitude of issues contributing to rising oil, corn, and other commodity prices and what the CFTC is doing to address the problem.

At one point, Chairwoman DeLauro (D-Conn.) began to raise her voice in frustration. She said that CFTC, which is in charge of assessing the commodity price problem, should also be taking action, but nothing is being done.

It is the price of onions, not oil that has risen the most since 2006, Lukken said. Oil and corn prices have risen 100 and 300 percent respectively, but onion prices have gone up 400 percent since 2006. 70 percent of oil in the U.S. is imported, Rep. Marcy Kaptur (D-Ohio) said. Money is moving away from America and into other financial markets, Kaptur said.

When prompted by Rep. Ray Lahood (R-Ill.) to answer questions about rising oil prices in simpler terms, Lukken said, “We are consuming more than we are producing.” Rep. Jack Kingston (R-Ga.) asked Lukken if any oil suppliers were hoarding inventory. Lukken said there is no evidence of hoarding.

A number of representatives said they were confused about the terminology Lukken was using. Chairwoman DeLauro observed the confusion and said that the commodity market is complex and so the answers to rising oil prices and other commodities will also be complex.

Low corn yield equals expensive beef

Corn, apparently, is many things. It is animal feed, human food, and ethanol. I spoke with George Chadima in Fairfax, a farm owner near Cedar Rapids, Iowa. Excessive moisture has caused the nitrogen to be leeched from the soil, which is requiring farmers to buy biologically active fertilizer. The corn that was planted already has been “drowned” by water pooling in areas, and much of the rest was also damaged by a recent hailstorm. Crops, he said, would probably yield 75-80% of what they normally do.

I was shown a warehouse that housed large containers of soybeans yet to be planted. The planting schedule is three weeks behind already due to the weather, and hopefully, he said, they’ll be able to plant within the next couple of days. This is happening to many farmers in Iowa, and the result is going to mean higher prices- in everything.

Corn prices, of course, will go up, since using corn for “human food” or exporting it elsewhere, essentially removes corn from the chain of production. Ethanol, surprisingly, does not create that problem, because after the grain alcohol is removed there are still co-products from the corn, such as animal feed, plastics, and oils. The chain of production includes feeding that corn to animals, and then using the byproducts as fertilizer. Because it is costing more to harvest the corn, and there will be less of it, this will cause beef prices to rise.

Food vs. Fuel: Battle of the corn

The Senate Energy and Natural Resources Committee held a hearing on renewable fuels and their effect on food prices. The chairman of the Committee, Senator Jeff Bingaman (D-NM), said that the U.S. must be mindful of any impacts of biofuel production. He said that between four and five percent of the 45 percent global increase in food prices in the last year was because of U.S. biofuels policy alone. Bingaman added that it is essential to ensure that U.S. biofuels policy does not harm the world’s poor.

Jack Huttner, Vice President of Biorefinery Business Development at Genencor, said that the biggest concern with the higher prices of fuel is how to meet energy needs and also produce enough food. Huttner said that a second generation of biofuels uses non-edible parts of corn, such as cobs and stalks, to make ethanol, which increases the amount of output per acre.

Jason Pyle, CEO of Sapphire Energy, presented a sample of a renewable gasoline made of algae. Pyle said that its production does not release carbon and does not involve agricultural lands or products. Pyle added that repealing the renewable fuel standards would inhibit innovations, such as the algae fuel, from helping to solve the energy crisis.