Letter Re: Macroeconomic Implications of Large Scale Ethanol Production in the U.S.

Hi Jim
I have run across some information that I thought might be of interest. I am in the food business and come in contact with a lot of people in the food industry.

One of my associates is in the frozen fruit and vegetable business. He has been telling me the effect that W's ethanol incentives are having on the agriculture industry and it is quite alarming. I have not
researched this, so don't have facts and figures to back it up, so take it for what it is worth.

This situation seems to have mysteriously stayed out of the mainstream media and the only thing that I have seen about this is that tortilla prices in Mexico have risen drastically because so much
corn is being grown to produce ethanol and the Mexican guvmint is trying to use price controls on corn.

There is a lot more to it than that. Apparently, the guvmint has made it so attractive to grow corn and soybeans for ethanol that a lot of farmers are switching out of other crops in order to grow corn
and soybeans. There are a couple of reasons for this. You get a guaranteed price. I have never been a farmer, but I know enough to know that that is unusual for a commodity. The farmers also get more money for the corn and soybeans going to ethanol production than they would selling it for feed. Corn and soybeans are not only used to feed cattle but also pigs, chickens and turkeys. This means
that cattle ranchers, turkey farmers, pig farmers and chicken farmers are having to pay more for feed.

The other attractive thing about this for farmers is that if you are growing corn, it doesn't matter what the quality is, if it has some type of fungus or blight or has turned brown. They pay the same money
for all of it.

The effect that this is going to have on the food business is very far-reaching. A lot of farmers are now switching over to corn and soybeans. Case in point is peas. Peas for canning and freezing were very short last year and are expected to be short again this year. The reason? Fewer and fewer farmers are growing peas because they can make more money growing corn and soybeans. Remember,
farming is no longer like the painting, "American Gothic". It is agribusiness run by the likes of Cargill, ADM, etc. They go where the money is.

Here is a link to an interesting article that discusses this on a local level.

I don't know if this is true, but what my friend told me is that even if all of the arable land in the U.S. were put to corn and soybeans for ethanol, it would not make a dent in the amount of oil that we
have to import.

I also don't think that most people know just how much of our food is imported. A very large quantity of our fresh fruits and vegetables are now imported. Many of the ingredients that go into food products manufactured here in the U.S. are imported. The majority of our canned meats and seafood are imported. Much of our canned fruits and vegetables are imported. More so in #10 cans than in the retail cans that you see in stores.

A good case in point is a canned bean packer that I work with. They are located in Illinois but they were telling me that a large percentage of their dry beans are imported. They pack a large amount
of organic beans and the majority of those are imported. Since the beans are all packed in the U.S., there is no indication on the cans that the raw material is imported. Pasta sauce is the same. Much
of the tomato paste that is used to make pasta sauce is imported. Virtually all canned tuna is imported. Even the big brands like Bumble Bee and Star Kist have offshore plants where they
pack their tuna.

My assessment of this is that between what is happening with domestic farmers and the decline of the US Dollar, food prices are going up, big time. Best Regards, - Kurt