Monday, January 29, 2007

Guesses on Farm Bill

The conventional wisdom seems to be coalescing around the idea that the next farm bill will see costs decreased because ethanol will push corn (and therefore soybean and cotton) prices higher and keep them high and there will be some sort of linkage between conservation programs and production of cellulosic ethanol (i.e., using switchgrass or whatever instead of grain). See this discussion from South Dakota and this post from John Phipps.

I'm a little skeptical about the reality behind the premise, that is, that we could have 5 straight years of great crop prices. I remember the push on synfuels under Carter in the 1970's, which was dismantled in the 1980's under Reagan as oil prices went south. I also remember enthusiasms for alternate crops that got legislated into law in past years (jojoba was one I remember and I'm too lazy to check the others). The free market does work, at least in the world of commodities such as oil and grain, resulting in volatility and ups and downs. Thus it has ever been since the first farmer sold his first surplus.

On the other hand, the weather's been reasonably good the past few years. Get a drought or a flood and that will put some adrenaline in the market.

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