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Corn+Soybean Digest

New Friends, New Fuel

The food vs. fuel game has everyone dashing to take sides. On the pro-ethanol side, there's George Bush and Brazilian President Luiz Inacio Lula da Silva, saying ethanol is a way to reduce dependence on foreign oil and to take it a little easier on the environment.

On the other side, there's Fidel Castro and Venezuela's Hugo Chavez — old friends of Lula — saying that filling American SUVs with agriculturally based biofuels is “sinister,”because it will mean higher corn prices and will drive food costs out of reach of the world's poor.

But there are heavy hitters on the Bush-Lula team. George Soros, American financial speculator, investor, philanthropist and political activist, is reportedly investing $900 million to build ethanol plants in Brazil.

Bill Gates is said to have bought a stake in Brazilian ethanol, and the co-founders of the Google search engine are rumored to be planning a similar move, even as groups of international bankers fly in to have a look around. Cargill has a serious stake in Brazilian ethanol production, and ADM has been eyeing Cosan, a large Brazilian ethanol producer.

But there are some strong arguments being made on the other side of the food vs. fuel debate, regardless of whether one likes Hugo or Fidel. A recent article in Foreign Affairs said, “(Record corn prices) might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor, developing countries, who will be hit with a double shock if both food prices and oil prices stay high.” Meanwhile, rising cornmeal prices have brought about riots in Zimbabwe and price controls in Mexico.

While the world's No. 1 corn exporter — the U.S. — diverts corn to ethanol plants, and sends less abroad to feed the world's poultry and hogs, Brazil — itself the world's No. 3 broiler producer, with the world's fourth-largest pork exports — has room to take up the slack. In fact, some estimates have Brazil increasing its annual corn production by up to 10% a year to make up for the corn the U.S. will be putting into fuel tanks instead of exporting.

The world's biggest corn exporter lowering foreign sales would please farmers in any corn-growing continent, whether Eastern Europe or South America. But there's even more reason to plant more corn outside the States: The U.S. may lower its corn exports just when China — home to one in every five people on the planet — is improving diets, and, thus, consuming more meat produced on rations containing corn.

When it comes to expanding acreage, few countries have the elbowroom enjoyed here in Brazil. One ag consultancy here says the corn-planted area in Brazil should shoot up 13% this coming season.

It's no wonder, then, that the food or fuel argument doesn't resonate much in Brazil — a country where even the environment minister has speculated grain and oilseed production could be tripled without having to knock down a single tree.

If historic trends continue, says one market observer, Brazil will be producing nearly 13% more corn by 2011. But the food and fuel debate isn't just affecting old political alliances. It may be changing some basic assumptions so that extrapolations like this one end up being conservative.

Buyers for processing and exporting facilities, for example, have already visited soybean and rice farmers in far-away Roraima state, trying to convince them to plant more corn. Odds are they won't have to try too hard.

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