The Rude Awakening
Laguna Beach, California
Tuesday, July 17, 2007 ------------------------- - Imprudent, inefficient and barely scraping a profit -
the ethanol story, - Crop circles - round and round we go,
- Your tour along the corn belt with our resident
resource trader and plenty more…
------------------------- Eric Fry, reporting from Laguna Beach, California… American-style ethanol production is a strange kind of uccess story. It's not exactly profitable, nor exactly energy-efficient, nor exactly agronomically prudent…and yet it consumes one quarter of the entire American corn crop. The success of corn-based ethanol production in the U.S. relies on large government subsidies, as well as on hefty tariffs against Brazilian imports. Furthermore, ethanol production consumes about as much energy as it delivers…if not more. And making the stuff requires prodigious amounts of water…and corn. The rapidly shrinking Ogallala Aquifer provides most of the water. The degrading soils of the Midwest provide the corn. We have no idea how much longer this bizarre combination of governmental coddling and dubious resource management can masquerade as an "energy solution." But when the mask does finally come off, we'd guess that a lot of investors - and farmers - will wish they'd never heard of ethanol. As things stand today, ethanol production diverts one quarter of the U.S. corn crop from dinner tables and feed lots to gas tanks…in the process boosting the prices of corn and numerous food products that rely on corn. Ethanol production, therefore, has fueled an agricultural gold rush. Everyone wants to grow those golden ears of corn that sometimes fetch $4.00 a bushel. This newfound love for corn crops would be fine if the nation's soils could tolerate it. Experience suggests otherwise, but many farmers are shunning traditional crop-rotation practices in favor of continuous corn planting. Farmland soils will likely suffer as a result. Therefore, to ethanol's lengthy list of drawbacks, you can add one more: soil degradation. In the article below, Kevin Kerr, the mind behind the Resource Trader Alert, provides a ground-level analysis of ethanol production… --- Big Gains from "Worthless" Oil --- Find out how one penny stock will soon begin to transfer the world's "junk oil" into pure profit… But you have to hurry: It's rallied hard in recent trading. Here are the details . ----------------------------------- Corn on Corn Action
By Kevin Kerr Ethanol may not be much of a long-term energy solution, but it has been one heck of a short-term solution for farming profitability. Because ethanol production is booming, so is demand for corn. Rising demand means rising prices, which makes corn farmers very happy…maybe too happy. Corn farming has become so enticing, that many farmers are ignoring the age-old imperative to rotate their corn crops with soybeans. Corn on corn is the new craze in grain-growing country. Farmers know that they must practice crop rotation to maintain the fertility of their soil. But with the price of corn rising and the allure of a corn goldmine, some farmers are throwing caution and common sense to the wind. By planting corn on corn and not using proper rotation practices, farmers will almost inevitably face the prospect of growing corn in nutrient-deficient clay. Soil deterioration is a perennial condition in the Corn Belt. For example, for about the last 20 years, much of eastern South Dakota's farmland has seen consistent healthy crop rotations. A typical rotation would alternate corn crops with soybean crops. However, because of the ethanol boom and the resulting jump in corn prices, more farmers are simply planting corn, then corn again, and yup, you guessed it, more corn. Many of the farmers I met of my farm tours through the Midwest this spring and summer were worried that corn on corn is becoming too popular, especially with young farmers. Corn seed sales are up at least 15%. During my trip, I even saw flyers in the local Walmart for farmer workshops about how to manage a continuous corn planting system. 
SDSU economist Thomas Dobbs writes in a recent publication that he worries about the loss of biological diversity on the farm, "I've been concerned for a long time, even about the corn-soybean rotation not being ecologically sound. But corn on corn is much worse. I think this is a real step backwards." Make no mistake; many experts say crop rotation is vital, no matter what the flyer at Wal-Mart says. Rotation serves several ecological and agronomic purposes. It makes it harder for diseases, weeds and insect pests to persist. The right rotation also builds soil fertility. Soybeans are a natural partner to corn because they capture nitrogen from the atmosphere, leaving more in the soil for the next year's crop. Some farmers and scientists disagree, saying that with new technology corn on corn is very possible to do effectively. I hope the corn on corn people are right. But I have my doubts. When farmers start ignoring centuries of wisdom, just for the sake of cashing in on next autumn's corn price, something must be very wrong. Probably, what's wrong is ethanol itself. This boom is probably going to go bust, even with government subsidies. Put it this way: the insiders are selling…to the outsiders. One Minnesota farmer I spoke with on my trip, wishing to remain anonymous, said that back when he and his fellow farmers built a co-op ethanol plant a few years back, the costs were half of what they are now, maybe even less. But now, a bunch of private-equity boys have come to town and funded new ethanol plants. "Many of us farmers just don't see how these new ethanol plants will ever turn a profit," my source said. Another farmer, off the record, said: "An ethanol plant closed here in Wisconsin a few years ago because the energy cost to produce it was too high, even with the subsidies. Now we have a new ethanol plant going to be built nearby in Minnesota. The owners of the local plant are laughing up a storm and said they are going to buy stock in the venture, pre-construction, and as soon as the construction starts, sell it." But the larger the ethanol boom grows, the more obvious ethanol's limitations become. Ethanol is not an energy solution, it is an energy speculation. It is a massive national speculation that is distorting the economics of numerous industries, while also promoting imprudent farming practices. Sticking with my theme of funny farming, let's talk about the acreage rental market…Yikes. $275 an acre is obscene. That, however, is the going rate in several corn-growing regions. "In many parts of the Midwest, farmland cash rents are moving to price levels beyond what many farmers might consider reasonable," observes Jeff Caldwell, Editor of Agriculture Online News. But many farmers are paying these unreasonable rents anyway, all in the hope of cashing in on high corn prices. On my last farm tour in June there wasn't one farmer I met with - or had Rhubarb pie with - that didn't bring up the issue of rental costs. All the farmers I met with, from Minnesota to Wisconsin to Iowa, owned their properties outright. So they were the ones doing the renting - often to younger farmers and smaller operations. All the farmers I met said the same thing. "I don't know how these smaller guys will pay the rent."
And rent is not the only sky-high cost that farmers are facing. Look at some of these input costs. Fertilizer is soaring, seed at the elevator, storage, transport, irrigation, fuel, etc. Then pile on top of that huge increases in rent for some farmers and the fact of the matter is they simply don't have any more blood to give. All of that expense is mounting and the only hope is for every farmer to have a perfectly harvested crop and fetch the highest market price, the chances of that in any year are slim to none.
It looks to me like corn on corn action is getting a little out of control…which is just one more sign that the Ethanol boom might be nearing the bust stage. Joel's Note: Pretty grim outlook, huh? At least, that is, if you've recently invested in an ethanol plant or neglected to rotate your crops. But all is not lost. Savvy investors know that where there is a downside, there is an opportunity to make real profit on the flipside. Today, as promised, we're giving you two opportunities to tilt the decline in the value of your dollars and soaring energy prices in your favor. Both methods take advantage of similar macroeconomic factors, both cost about the same price to get started and both present massive upside potential. The first way to protect your dollars is for the slow and steady investor, looking for reliable, medium- to long-term growth. The second will appeal to aggressive traders seeking some exciting gains with active trading. The EverBank MarketSafe Silver CD launches today. It's the brainchild of a close working relationship with our friends over at EverBank and Agora Financial's own editors, Kevin Kerr included. Explained simply, the MarketSafe Silver CD is a certificate of deposit that you can park your dollars in to avail them to the upside potential of silver's spot price. As the price moves up, you enjoy the gains…all with 100% protection of your principal. It's a pretty surefire way for you to hedge against the plummeting value of the greenback while still enjoying the comfort and safety of principal protection. If you prefer reliable growth with 100% protection, click here for all the details on this brand new product: EverBank MarketSafe Silver CD If you're after some serious action and don't mind getting aggressive when it comes to hunting down profit, this next opportunity might be more your bag. The link below takes you to an alert Kevin Kerr sent to his readers, urging them to call their broker and collect the 400% they just banked on the silver calls he recommended only 34 days prior. With an average closed position up 96% last year, Kevin Kerr's Resource Trader Alert is perfect if you want to make some explosive profit in a short period of time. Aggressive traders will know this is a pretty stunning track record. If you're that trader, you'll find all the details you need to get started here: Kevin Kerr's Resource Trader Alert -------------------------------------- Did You Notice? - Crazy Culture [Just as we were going to press with this morning's Rude Awakening, we stumbled upon the following observations from our colleagues over at the Daily Reckoning… "Agriculture has gone crazy," said a farmer we spoke to over the weekend. "We're getting prices that are twice what they were four years ago. Everyone is planting as much as possible. Of course, in our industry, you can't know what will happen. You get a bad harvest in Australia or America and prices can go up - even though a record amount was planted. "But what is really creating havoc is the switch to biofuels. It's amazing how everyone seems to have grabbed onto that idea as the solution to global warming. But it takes huge amounts of grain to produce significant outputs of fuels. And then, the grain takes huge amounts of inputs - land, water, fertiliser, fuel. I'm not sure that it benefits the earth at all…in terms of the hydrocarbons that it produces, but there is no question that it benefits the farmers. All grain prices are up. If we get a good harvest this year, it will be a very good year for farmers in Europe. We had a lot of water…and now we need some hot, dry days…" One unintended consequence of all the loose money has been tight farm supplies. Inventories of grains are said to be at their lowest level in 30 years. And an international study said food prices rose 23% in the last 18 months. This rise in food prices isn't good if you are trying to buy groceries for the week…but if you are positioned properly in the commodities market, you could stand to turn a nice profit. More dollars in circulation puts more cars on the roads…and more air-conditioners in windows…and more electrons flowing through wires all over the planet. Encouraged to come up with a solution to the energy/global warming crisis, farmers discovered a whole new market for their production - making fuel. They are taking food for humans and turning it into food for machines - just at a time when more and more humans want more and more food themselves. As people get richer, they typically move up the food chain - preferring to get more of their calories from meat, which requires more grains to rise. But now, humans compete with machines for farm output…and farm prices are rising. "Groceries gobble up budgets," says a headline in the Sun-Sentinel, from sunny South Florida. And an item in the weekend news tells us that the UN says it can no longer afford its World Food Program, which benefited 90 million of the world's poorest people. Ben Bernanke is expected to worry about rising food prices when he talks to Congress this week. But the poor Fed chief is in a tight spot. He needs to raise interest rates to head off consumer price inflation. What will that do the housing situation, he must wonder… --- Urgent Investment Special Coverage ---
Ethanol is NOT the Answer…So What's going To Save Us From… The Full-on Oil War of 2007: Bloody New "Backlash" Set to Rocket Oil Past $150… and Send Gas Soaring to Over $6 per Gallon - [Tue Jul 17 07:01:58 2007. US/Eastern] Read This Shocking Report Here: Outstanding Investments | 
