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Energy Analyst Warns Of Looming Food Shortages In 2009

By James Donahue

Neal Rauhauser, an analyst and consultant on energy and telecommunications, recently published a warning of a looming shortage of grain and other foods on U.S. farms because of the high cost of fuel, a major fertilizer shortage and the inability of farmers to acquire bank loans to finance the 2009 plantings.

Rauhauser, who uses the Internet pen name Stranded Wind, wrote in the Daily Kos and The Cutting Edge that this year’s corn crop is being harvested late and too wet for storage but there is a shortage of propane gas to operate the grain dryers. There also is a shortage of diesel fuel and gasoline to operate farm machinery throughout the Midwest.

Unless I’m badly mistaken people are going to be starving in 2009 over causes and conditions being set down right now,” Rauhauser wrote. He said the problem facing American farmers this fall is “a complex, interlocking issue.”

Without getting into all of the statistics, the problem is that some of the corn and soy bean crop is still in the field and farmers are struggling to get it harvested as they battle the high cost of fuel and propane gas with which to get the grain dry enough to prevent spoilage during the winter. Not only is the propane gas costing more, there is a shortage, so even if farmers have the money to buy it, they are waiting on supply.

The winter wheat crop is planted, but because there has been a big hike in the cost of ammonia, a fertilizer that raises yield and pushes protein content from the old 8 percent level to 14 percent, farmers are cutting back.

Most of the world’s wheat is exported from the United States, Canada, Russia and Australia. But the rush to biofuels from corn and other crops has reduced the acreage available for wheat production in the United States, Rauhauser said. He said wheat production per capita has dropped from an excess of two hundred pounds to just forty pounds per capita. He said consumers were substituting wheat for the corn that was being used to produce ethanol.

While extreme weather events believed resulting from global warming are affecting crop yields, the biggest problem facing farmers is rising costs of fertilizer and fuel, and a refusal by banks to loan the money needed to plant.

Rauhauser wrote that “the local bank was quite willing to lend to a farmer on a crop despite the weather related risks just like they’d lend on a car despite the driving risks. So long as the asset was insured the risk was deemed manageable.”

But something happened this year to drastically change the risk factor. Massive flooding from hurricanes and heavy rains throughout portions of the Midwest appear to have put such a strain on insurance carriers that farmers have been waiting for months to collect claims against the largest private farm insurer, Rain and Hail Agricultural Insurance of Des Moines, Iowa and there is a strong suspicion the company has gone insolvent. “I suspect Wall Street’s sticky fingers got hold of Rain & Hail’s assets, just as they’ve done to every pension fund and state run municipal investment pool.”

Because of this Rauhauser said banks are no longer lending to farmers.

Farmers without financing can’t afford nitrogen fertilizer at $1,000 a ton, which translates to $100 an acre at current application rates,” he wrote. “They won’t be paying $300 for a bag of 80,000 hybrid corn kernels, again a $100 per acre expense. The average farm size in Iowa is four hundred acres and planting to harvesting would run about $120,000.”

To make matters even more desperate, Rauhauser noted that VeraSun Energy, of Aurora, South Dakota, the second largest ethanol maker in the United States, went bankrupt Nov. 1 without paying any of the farmers for the corn it received. Consequently “a whole lot of family farms are going to be foreclosed upon in short order if something isn’t done.”

He wrote that as he sees it, “lives are on the line eighteen months from now based on the decisions farmers are making today. Food stress is beginning to destabilize countries. Haiti, Egypt, many locations in sub-Saharan Africa and Bangladesh have all seen food riots. Most worrying of all is Pakistan, with food riots on top of a shaky government, a cold war on one side and a hot war on the other.”