Last week, I told you about the Global Financial Leadership Conference. I reviewed the points made by former Prime Minister Tony Blair and former Chairman of the Federal Reserve Paul Volcker.
I was on the program following those keynote presenters, and here is, in part, the message that I delivered.
What a difference a few weeks can make. We heard the hysteria about skyrocketing oil prices headed for 200 dollars a barrel. Corn was going to 9 dollars per bushel. Now, they are both down by more than 30%. The new hysteria in the spotlight is a national financial crisis.
On the oil front – let’s hope that just because the price is down some, we don’t forget that we need to reduce our dependence on foreign oil. Buying all this oil from other countries that aren’t even very friendly transfers our wealth and jobs to them. How dumb is that?
On the food versus fuel question – it’s time to take this dispute off the table. Maybe part of the explosion in corn prices was because of the speculators. Look how fast it came down.
We all know the cost of energy must be the main driver. If it weren’t the driver, how do we explain why apples and coffee and hops to make our beer went up as much or more than corn? The acres that grow those commodities are not the same ones we use to grow corn.
Let me add that most economists are now predicting that the breakeven price for corn production in 2009 will be about $4.00 per bushel. How did this happen? Energy inflation.
On average, our food prices have only experienced about a 5% run-up. Prices for food in some developing countries are up more than 40%. That is very serious since they already spend as much as 40% of their income on food. We spend less than 10%. Still, don’t blame the American farmer. We are doing our share exporting a record volume of food. More than 100 billion dollars worth last year; maybe 150 billion this year.
Those are some of the key points that I made in my presentation. We may be out of the spotlight for now but next year will be an interesting challenge for our farmers and ranchers.
Have a safe harvest.
Listen to the broadcast here.