June 19, 2008
Elaine Meinel Supkis
The great Midwest floods continue as the wall of water from epic rains in the Great Lakes region moves southwards. Many of the animal concentration camps filled with chickens or hogs or dairy cows are now totally underwater. Most of the larger mammals were removed to high ground. But this flood reminds me about the other Great Mississippi flood of 1927 which bankrupted so many farmers back then. Also, we look at corn prices to try to understand inflation. Corn has jumped from about $3 a bushel to $8 a bushel. This feeds back into the inflationary system, of course. But not quite as directly as oil.
(Reuters) - The Mississippi River has flowed over the top of a levee north of St. Louis protecting an environmental management area, bringing the total number of compromised levees to 23, said the U.S. Army Corps of Engineers on Thursday.
The levee, near the convergence of the Missouri and Mississippi rivers, protected about 4,000 acres.
Farm disasters usually aren't noticed much except when they are global in nature or there is some sort of hijinks going on in the financial markets. This year, we have both so it is very obvious to everyone. When the Bread Basket of the US, the Bread Basket of Australia and the Rice Bowl of China all have either terrible, huge floods or droughts in the case of Australia, world food prices go up. Especially when the economies undergoing this are the world's #1 and #3 economies. On top of this, China has nearly a billion people. The need to fix infrastructure from the earthquakes that wrecked Sichuan Province, the terrible winter storms and now, raging floods means higher international food prices as China, holder of the world's biggest FOREX reserves, goes shopping.
The US is deep in debt and competing with China in the food markets because we burn a lot of corn to make energy. People use corn to heat their houses and now, drive the cars. Since much of this is connected with energy prices, this means more inflation at the fundamental levels.
(Reuters) - China has posted hundreds of police and rescue officials to shore up dams threatening to burst under torrential rain that has already flooded thousands of square miles of crops and homes.
The rain and floods, concentrated in the southern industrial hub of Guangdong, have killed at least 171 people and left 52 missing since the start of the annual flood season and forecasters have warned of more downpours in coming days.
More than 750 government officials and police had been sent to conduct rescue work for six reservoirs in "danger of bursting" in southern Guangxi region, Xinhua news agency said.
China announced today, they are going to raise the price of energy and state-supported food. The need to relieve inflation by moving it downwards to the classes that are struggling to save money is important: all economic systems right themselves by sucking down savings. It doesn't matter how you save. If you save via investing in anything, it will go down if there is inflation. Then, inflation eats it up. This is the despair of all savers which is why so many humans are 'party today for tomorrow we die.' The ants in the population are always outnumbered by grasshoppers.
Yet all sound banking systems are built upon savers. Ants make capitalism possible. But grasshoppers think only of the consumer side of the ledger which is why all pronouncements about the health of our economy always focus on consumers, never savers. This tension goes back to the beginning of civilization. The earliest city states knew that the central authorities, usually religious magicians, would hold the excess of the previous 7 years of harvest in case of floods, freezes or droughts. This was how 'savings' was born. It requires stern will power to put aside something for the future.
Greenspan and his buddies loved to talk about the 'global savings glut'. They gloated over how to seize this non-consumed wealth. Of course, destroying it via inflation is the oldest method in the books. It goes hand in glove with excess magic money creation by sex-starved gnomes. Heh. The point is, we have lots of dollars floating about and everyone is troubled by problems with farm harvests. The farmers who are not hit by all this will be ecstatic with joy as they get a higher return on their labor. But this won't help them if everything they need to run their farms ends up costing more and more and more thanks to inflation.
Corn prices reached another record Monday, closing in on US$8 a bushel, as devastating U.S. Midwest floods raised fears of a sharply smaller U.S. corn crop and another spike in world food prices.
Other commodities traded mostly higher, with gold, silver, copper and wheat futures all climbing. Crude oil surged to a record near $140 a barrel and then fell in volatile trading.
Corn prices have shot up 11 per cent in the last week as floodwaters continue to ravage the Midwest, swallowing corn fields just before the crucial growing season. The U.S. government will report June 30 on how many hectares have been lost to flooding, but a survey in Farm Futures magazine estimated that flooding could claim 1.3 million hectares _ or nearly four per cent of the expected crop.
See? Money is looking for some lucrative place to park itself and then 'grow' like weeds in a wet, warm summer. Generally speaking, corn prices go up rapidly when there is growing inflation. It doesn't cause inflation. We have to have this 'perfect storm' situation for it to shoot upwards. Below is a sample as to how this works. The corn growers in Canada track the value of their corn in relation to the rate of inflation. Only very recently, has corn shot up. For much of the last 20 years, it has been fairly stable.
Since U.S. ethanol production uses field corn, the most direct impact of increased ethanol production should be on field corn prices and on the price of food products based on field corn. However, even for those products heavily based on field corn, the effect of rising corn prices is dampened by other market factors. For example, an 18-ounce box of corn flakes contains about 12.9 ounces of milled field corn. When field corn is priced at $2.28 per bushel (the 20-year average), the actual value of corn represented in the box of corn flakes is about 3.3 cents (1 bushel = 56 pounds). (The remainder is packaging, processing, advertising, transportation, and other costs.) At $3.40 per bushel, the average price in 2007, the value is about 4.9 cents. The 49-percent increase in corn prices would be expected to raise the price of a box of corn flakes by about 1.6 cents, or 0.5 percent, assuming no other cost increases.
Using these ratios and data from the Bureau of Labor Statistics, a simple pass-through model provides estimates of the expected increase in meat prices given the higher corn prices. The logic of this model is illustrated by an example using chicken prices. Over the past 20 years, the average price of a bushel of corn in the U.S. has been $2.28, implying that a pound of chicken at the retail level uses 8 cents worth of corn, or about 4 percent of the $2.05 average retail price for chicken breasts. Using the average price of corn for 2007 ($3.40 per bushel) and assuming producers do not change their animal-feeding practices, retail chicken prices would rise 5.2 cents, or 2.5 percent. Using the same corn data, retail beef prices would go up 14 cents per pound, or 8.7 percent, while pork prices would rise 13 cents per pound, or 4.1 percent.
The cost of corn for producing meat or eggs is the least of the overhead. Handling and processing as well as caring for sheep, pigs, cows or chickens is quite labor intensive. And since most modern farms have these living indoors, this uses up lots more electricity than in the past. Much of the developing world including China operates on the older system that uses virtually no electricity or oil. But the modern system does. Which is why it takes a one-two punch from both oil and corn going up to fuel lots of price hikes. Then there are the speculators: they are all over this flood news like flies on a dead cow. They increase the bidding wars greatly.
Now for a look backwards to the other great Mississippi flood, the one that devastated the heartlands right before the Great Stock Market Crash of 1929:
There are certain parallels between the great flood and Hurricane Katrina. The Mississippi flood of 1927 exposed the class divide in America as well as laid bare grinding class and racial oppression in the South. It also demonstrated the need for the federal government to take charge of managing the Mississippi, which had been previously left to state and local authorities.
The book describes in detail the origins of the ill-conceived “levees only” policy adopted by the US Army Corps of Engineers for controlling the Mississippi. It also examines the career of Senator John Percy of Mississippi, a wealthy plantation owner, whose hometown of Greenville became the focus of an investigation following the flood because of reports of gross mistreatment of black refugees.
Its accounts of the flood itself are compelling. In late August of 1926, massive rains soaked a large portion of the Mississippi watershed, causing widespread flooding. That was, however, only the first of a series of deluges that would eventually push the Mississippi and its tributaries to record flood levels.
This reminds us of Katrina. The will of the government to protect and defend the people of the Delta region was colored by naked racism. Both black and poor white people were left to drown or die in the filth. Even today, with these floods, the national response is rather muted. We are easily distracted. Look at Congress: they are voting yet another $168 billion for the misled war in Iraq. Most of the National Guard that should be saving people, goods and livestock in the Midwest are in Iraq, dying or messing around fruitlessly.
The author cites a 1912 New York Times article that illustrates the serf-like conditions faced by blacks in Mississippi. The Times reported that an engineer overseeing work on a levee threatened by high water ran out of sandbags and “ordered...several hundred negroes...to lie down on top of the levee and as close together as possible. The black men obeyed, and although spray frequently dashed over them, they prevented the overflow that might have developed into an ugly crevasse. For an hour and a half this lasted, until the additional sandbags arrived” (p. 131).
Conditions for the poor—white and black—were abysmal in 1920s Mississippi. A planter listed what he considered the typical items that would have to be replaced for a sharecropper family that had lost everything in the flood: “1 dipper, 1 baking pan, 4 forks, 4 spoons, 1 large spoon...4 joints of stove pipe, 1 elbow for stove pipe, 1 cooking stove...1 suit overalls, 4 pair shoes...two beds and springs.” The cost of these items totaled $77.42. Most flood victims did not even receive that much (p. 371).
Barry recounts that when the break on the levee at Mounds Landing first appeared, the National Guard commander in charge forced black levee workers to continue filling sandbags at gunpoint. According to some reports, as many as 200 of these workers drowned when the levee finally gave way.
Anne Moody's 'Coming of Age in Mississippi' is a detailed account about the aftermath of Jim Crow, the flood and the struggle for civil rights. She was one of the famous Woolworth counter sit in members and was abused and beaten very badly during that push to integrate businesses. The extreme poverty she lived in was a tool used by the ruling elites to keep prices low. The lack of inflation was like we see today, namely, if the poor can't stay alive, there is no inflation so long as they quietly starve. This is the painful price of such stability that still generates good profits.
We do not want to return to those days any more than the average Chinese does not want to return to the days of Mao or pre-WWII.