Since it is Memorial Day weekend, I have gone on a trip. I drove for about 200 miles or so on rural roads. Everywhere I look, there is corn just starting to pop up.
In fields where there were soybeans last year and the year before, there is corn. Every farmer has watched the price of corn go up and has said to themselves: “I got to get me some of that action.”
I hope some farmers have said, “Everyone is in corn. No one is planting soybeans. I’m going to plant some soybeans.”
Ethanol demand and publicity is causing this huge planting in corn. I hope I am wrong. But I think too much corn has been planted. And here is my reasoning.
Supply and demand is a two sided action. Supply goes up and relative demand lessens. In the book Fifth Discipline, Peter Senge discusses the Learning Organization and more importantly discusses the pitfalls a non-Learning Organization will tumble into. One of the pitfalls is over-ramping production. Because there are time delays between any ramp up in production, it could be that by the time someone ramps up production, the demand could have already lessened. Beanie babies, and now Webkinz anybody?
Farmers may have over ramped in corn plantings and unfortunately may have also over-reduced supply with other crops thus increasing their relative demand.
How does this apply to alternative energy? Ethanol production is expected to go up, so the conventional wisdom is that there will be a less need for gasoline. You can bet all of the oil companies have read Peter Senge’s work. Despite the current high demand for gasoline, the oil companies are not going to start building refinery capacity in time for ethanol to lessen demand. Oil companies are betting that we are at our gasoline peak.
I hope we are.
Farmers have not read Peter Senge and they will suffer except for those not growing corn. And if this happens, it will be hard to get more farmers to grow corn or any other fuel crop without better price guarantees.
Wonderful article! Great insight and keen observations about alternative energy and supply/demand relationships. I think you have hit the nail squarely on the head.
Another reasoning that should be mention. Corn produces a number of gases that like co2 contribute to global warming. Too much corn can also be bad to the environment.