Monday, February 25, 2008

Ethanol Production Versus Food Production

Two very important stories appeared in the media recently. The first entitled “Drive for biofuels could hurt at pumps”, and the second, “Food costs increase in past year.” These items each were frightening enough when read separately, they were all the more ominous when linked together.

The biofuel item suggested that gasoline production probably will be curtailed in the future because of the increase in ethanol availability. Refinery owners say that to increase their production would mean spending billions to increase capacity. In addition Congress has demanded that auto manufacturers increase fuel efficiency. This will, the refiners say, reduce public need for their product. That then becomes their excuse for not building any more refineries. That could be the truth. Or the truth could lie somewhere between their comments and the following scenario. Consider this possibility. The refiners do not want the competition of ethanol. They also do not want Congress further requiring auto manufacturers to increase fuel efficiency. The price of gasoline is where it is because of two factors. Supply and demand. The supply is controlled by the refiners and the demand is controlled by the consumers. As long as oil companies are the only game in town, they get to call the tune. Is it possible that they are letting everyone know who is really running this show?

Ethanol becomes a competitor for fossil based gasoline. You have surely heard that competition is healthy. Well it is healthy for the consumer. It is not so healthy for the competitors. As long as oil companies control the production of fuel, they have a much better chance of controlling the price. When an interloper such as ethanol enters the picture, they lose some of their competitive edge. They then lose their opportunity to control the price of their product.

The second article had to do with food costs. Just recently I was shopping at a local grocery store and happened upon a posted notice near the dairy section. The ominous warning advised that the price of milk was going to be going up dramatically. According to the other story in the media, food and beverage costs increased 3.9 percent from May a year ago. That, it seems, is just the beginning. All sorts of reasons are offered for these increases. Of course there are the old standbys of energy costs as well as bad weather. There was another reason given also. The demand for corn by the ethanol industry.

As I am sure you are aware, corn is the basic feed of most livestock. It is utilized extensively in the production of milk and eggs. Humans also eat corn products from the vegetable itself to corn meal, sugar, and corn oil. Corn is one of the most commonly consumed agricultural products grown today.

Here then is the link. Oil companies, in order to insure control over their price, will probably cut back on gasoline production, thereby driving the price upward. Ethanol producers will probably make as much ethanol as their refineries will allow to take advantage of the higher price of gasoline. Dairies, livestock feeders, and hatcheries will have to pay through the nose for feed. Food processors will also. This, of course, will force the price of all basic food commodities to go higher and higher.

Who wins and who loses? I can remember when gasoline and milk was twenty five cents a gallon. Bread was fifteen cents a loaf. Those days are over forever. The question is, are the days of ten dollar milk and ten dollar gasoline, as well as five dollars for a dozen eggs just around the corner? I don’t know the answer but I see some truly ominous signs.

Ron Scarbro February 2008

Monday, February 18, 2008


I was just watching news coverage of the election in Pakistan. Some thoughts have struck me as I have tried to understand this culture. I use the word culture quite loosely. The first thought is that a very promising candidate to run that country was assassinated. That was Benazir Bhutto. She was a bright, educated, and probably caring individual who could have made a major difference in that extremely backward country. By the same token she no doubt carried with her some serious baggage. Her first and apparent biggest sin was that she was a woman. Some have said that she was taken out because of just that fact. The rallying cry was that no Muslim country could be run by a woman. There is also the possibility that her presence was a problem for the opposition. She was very popular. So let us consider these facts.

If one examines the entire Middle East, one comes away with some interesting observations. One of the most notable is the lack of value they all seem to place on women. You have seen the requirement that women be covered from head to foot. Just recently a woman was arrested in Saudi Arabia for sitting at the same table with a male co-worker discussing business matters. Women and young girls are beaten and murdered, often by their own male family members, for all sorts of real or imagined crimes. The crime most often charged is rape. The female is of course punished even though she was the victim of the rape. These are called “honor killings”. We have all seen women being beaten with whips and belts just because it pleases some men to do so. This appears to occur with impunity. Here’s my question. How would you feel if someone walked up to your wife, daughter, or even your mother and started beating them just because it pleased them to do so? Would you just allow that to happen? Would you join in on the punishment? Or would you take out the perpetrators of this abuse?

This seems to be common in the entire backward Middle East not just Pakistan. The explanation most often offered is that this behavior is a requirement of their religion.

Well ladies and gentlemen this is 2008. Women are not cattle, not here and not in Pakistan. They are not owned property. For any government to condone this ridiculous behavior is criminal. For them to avert their eyes to what is going on is also criminal. For our government to have a relationship with any such country is worse than criminal. This crap has to stop.

The Middle East has a lot of problems and they are not going to be solved until they first deal with this most basic issue.

Technology is changing the world. Great strides are happening and will continue to happen. Challenges of global warming and reduced fuel supplies are maybe just one computer click away from solution. All persons on the earth have value. Consider that any one of the young girls murdered by their brother could have held the secret to cancer cures. The arrogance of any religion or government that allows this egregious behavior is just unacceptable.

The western world has to stand up and be counted. Don’t tell me it is not our problem because it just may be soon. In Canada just recently, a father murdered his own daughter because of the way she wanted to dress.

His lame excuse was religion. Nonsense. It is time for the intelligent in the world to end this.

Ron Scarbro February 18, 2008

Tuesday, February 12, 2008

The "R" Word and Other B.S.


The “R” word is of course recession. B.S. is self explanatory. Recession is defined by the experts as two consecutive negative growth quarters. To those who believe we are in recession may I point out that we have not had one negative growth quarter yet let alone two. So much for the word.

Now let us consider the other B.S. If you read the newspapers or watch television news you would have to believe our economy is going straight into the toilet. For the last six months there has been a loud and consistent cry of agony. Foreclosures are through the roof. Unemployment is rising at an unbelievable rate. We probably will never recover. The government should do something. Bail-outs are the only answer. Banks should be forbidden from foreclosing on past due home loans. Adjustable rate loans should be frozen at the introductory rate even though the contract that was signed by the borrowers clearly called for such adjustments as rates changed. If we don’t act, people could lose their houses and cars. Oh woe is us.

Well guess what. If people fail to pay their loans as they agreed in their contracts they should lose their homes and cars. If banks suffer huge losses, how is it the problem of the taxpayers? If bankers loaned money based on suspicious appraisals to less than desirable borrowers they should lose that money.

This is not the earth shattering problem the media would have you believe however. We are not experiencing a recession. We are in a business cycle. Consider this. An individual is on a staircase and he is playing with a yoyo. As he walks up the steps, the yoyo goes up and down. Sometime the yoyo is up and sometime it is down, but the individual continues to climb the stairs. The individual is the economy and the yoyo is business cycles.

Now for some more B.S. When the banks made these bad loans, they bundled some of the contracts together and sold them to other banks at a discounted price. The banks buying the discounted loans thought they would make millions because everybody knows that real estate will always gain in value. Well guess what. When builders over build and banks over loan and realtors over sell and buyers over buy, disaster ensues. A housing surplus occurs. Inventories grow. Credit tightens. Buyers can’t buy and therefore sellers can’t sell. Values decline. You wind up with what is happening now.

Is this the end of the world the media would have you believe? I say no. What we have here is one of the great opportunities of a lifetime. Several years ago in Seattle, Boeing had some reversals and laid off a lot of people. Houses were vacated as people just up and left. There was even a sign on one of the highways going east that read, “Will the last person leaving please turn out the lights”. Some very smart folks decided to buy up all the houses they could and now they are millionaires. They took advantage of a business cycle and didn’t succumb to the hype.

The problems facing our economy right now are for the most part inventions of the media. Our unemployment numbers have been very steady. Inflation is virtually non-existent. The people who are having money problems are probably the same people who would be having problems regardless of economic conditions. Sometimes hype becomes epidemic. People see their very solvable problems as bigger than they are. The victims among us who think they have been taken advantage of by the banks, and the realtors are finding an excuse for their excesses.

It is time for smart people to gobble up these steals that are available. Don’t buy the hype. The business cycle will turn upward probably as soon as the latter part of this year. Take the “R” word and the B.S. and make lemonade. This country needs a few more millionaires.

Ron Scarbro Feb 2008