Butterfly Effect: Corn Hits Record Highs

    There are several news sources commenting on corn hitting record highs. A week ago, I got my annual passes to the Berkshire Hathaway Annual Shareholders...

    Cornethanol

    There are several news sources commenting on corn hitting record highs. A week ago, I got my annual passes to the Berkshire Hathaway Annual Shareholders meeting. Just two weeks ago I saw a news clip on the rising price of wheat as agricultural land devoted to growing wheat is being reallocated to growing corn which is producing higher revenue yields.

    Now what am I fumbling about? I’ll admit it has been a long week and I am glad it is Friday so perhaps this entry is a little self-indulgent. I am simply marvelling the cause and effect of one’s actions on others. Taken to an extreme, the phenom has been labelled the “Butterfly effect“.

    The passes to Berkshire Hathaway’s meeting reminded me of an answer Warren Buffet gave at the 2007 meeting when someone asked him about what he thought of corn ethanol being used as an alternative source of energy. His response was common sense, yet somehow, I just hadn’t viewed it that way until he stated it, and as the answer rushed out, it seemed so obvious. He said that he thought it was absurd to take something which is essential to feeding people and convert it into something that can be guzzled by our machines. He predicted an increase demand on corn and how it would raise prices for food for the average person.

    And he was right. Not only is using corn a component of the overall rise in demand for corn, but it has also impacted other food staples. Wheat, because it is a food source that competes with corn and other agriculture for land. Meat, because it is further out in the food chain.

    I’ll admit this isn’t the purest, academic example of the butterfly effect, but it is a concrete example and a good point to reflect on. In a world where there is so much information floating around, how we interpret and figure out the relationship between information points becomes the value-add.

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    Loni Stark
    Loni Stark is a self-professed foodie, and adventure travel seeker, and yet is also passionate about technology’s impact on business and creativity. She's the host of our Stark Insider video features. It’s been said her laugh can be heard from San Jose all the way up to the Golden Gate Bridge. She makes no claims to super powers, although sushi is definitely her Kryptonite. Loni's story...
    • Damian

      <p>Yeah the impact of high corn prices will impact just about every food product we eat. The most popular sweetner in just about every packaged food product is corn syrup – it's amazing what it's in – check out the labels for ketchup and Coke for example. And corn is also the primary feed for a huge percentage of our meat farmed cattle, poultry, pigs etc. So corn prices directly impact meat prices. </p> <p>But the impacts of our increased use of Ethanol are not limited to just the US…we are directly impacting other nations as well. For example, a direct impact of our increased use of Ethanol has been a tortilla shortage in Mexico. This sounds funny…i.e. we won't be able to get a good taco in Loreto anymore, but actually because corn tortillas are such a huge staple of the Mexican diet any shortages or cost increases are felt directly and massively by the population. It has even become a major topic in the Mexican parliament. </p> <p>But for me, the bigger concern is the impact to the environment. Corn requires a huge amount of water and sunshine to grow and grows best in sandy soil. Consequently it is often grown in fields that require massive irrigation. The environmental and financial cost of diverting all this water will become more and more of a problem and could negate the benefits of using ethanol in the first place. It would be far better for everybody if we invested in green generation of electricity and electric vehicles rather than try to get our existing gas guzlers to guzzle bio-gas that requires more energy to produce than it delivers. </p>

    • Damian

      Yeah the impact of high corn prices will impact just about every food product we eat. The most popular sweetner in just about every packaged food product is corn syrup – it’s amazing what it’s in – check out the labels for ketchup and Coke for example. And corn is also the primary feed for a huge percentage of our meat farmed cattle, poultry, pigs etc. So corn prices directly impact meat prices.

      But the impacts of our increased use of Ethanol are not limited to just the US…we are directly impacting other nations as well. For example, a direct impact of our increased use of Ethanol has been a tortilla shortage in Mexico. This sounds funny…i.e. we won’t be able to get a good taco in Loreto anymore, but actually because corn tortillas are such a huge staple of the Mexican diet any shortages or cost increases are felt directly and massively by the population. It has even become a major topic in the Mexican parliament.

      But for me, the bigger concern is the impact to the environment. Corn requires a huge amount of water and sunshine to grow and grows best in sandy soil. Consequently it is often grown in fields that require massive irrigation. The environmental and financial cost of diverting all this water will become more and more of a problem and could negate the benefits of using ethanol in the first place. It would be far better for everybody if we invested in green generation of electricity and electric vehicles rather than try to get our existing gas guzlers to guzzle bio-gas that requires more energy to produce than it delivers.

    • Damian

      Yeah the impact of high corn prices will impact just about every food product we eat. The most popular sweetner in just about every packaged food product is corn syrup – it’s amazing what it’s in – check out the labels for ketchup and Coke for example. And corn is also the primary feed for a huge percentage of our meat farmed cattle, poultry, pigs etc. So corn prices directly impact meat prices.

      But the impacts of our increased use of Ethanol are not limited to just the US…we are directly impacting other nations as well. For example, a direct impact of our increased use of Ethanol has been a tortilla shortage in Mexico. This sounds funny…i.e. we won’t be able to get a good taco in Loreto anymore, but actually because corn tortillas are such a huge staple of the Mexican diet any shortages or cost increases are felt directly and massively by the population. It has even become a major topic in the Mexican parliament.

      But for me, the bigger concern is the impact to the environment. Corn requires a huge amount of water and sunshine to grow and grows best in sandy soil. Consequently it is often grown in fields that require massive irrigation. The environmental and financial cost of diverting all this water will become more and more of a problem and could negate the benefits of using ethanol in the first place. It would be far better for everybody if we invested in green generation of electricity and electric vehicles rather than try to get our existing gas guzlers to guzzle bio-gas that requires more energy to produce than it delivers.

    • Loni Kao Stark

      <p>Great comments – thanks for visiting our blog.</p> <p>You bring up a great point about corn requiring huge amounts of water, sunshine to grow. It also requires a lot of fertilizer. This week's BusinessWeek edition (April 14, pp. 16) noted that sulfuric acid has jumped from $90 a ton to more than $300 a ton due to the ethanol boom. Sulfuric acid is a huge culprit of acid rain (<a href="http://www.npi.gov.au/database/substance-info/profiles/78.html)" target="_blank"><a href="http://www.npi.gov.au/database/substance-info/profiles/78.html)</a>" target="_blank"><a href="http://www.npi.gov.au/database/substance-info/pro…</a></a>" target="_blank">http://www.npi.gov.au/database/substance-info/pro…</a></a></a> and mining it has huge health risks. Demand had been diminishing for it until the ethanol boom.</p> <p>Yesterday at dinner, our friends whose parents own a ranch noted their parents were also being impacted greatly as prices for livestock have come down because of the rising cost of feed.</p>

    • Loni Kao Stark

      Great comments – thanks for visiting our blog.

      You bring up a great point about corn requiring huge amounts of water, sunshine to grow. It also requires a lot of fertilizer. This week’s BusinessWeek edition (April 14, pp. 16) noted that sulfuric acid has jumped from $90 a ton to more than $300 a ton due to the ethanol boom. Sulfuric acid is a huge culprit of acid rain (http://www.npi.gov.au/database/substance-info/profiles/78.html) and mining it has huge health risks. Demand had been diminishing for it until the ethanol boom.

      Yesterday at dinner, our friends whose parents own a ranch noted their parents were also being impacted greatly as prices for livestock have come down because of the rising cost of feed.

    • Loni Kao Stark

      Great comments – thanks for visiting our blog.

      You bring up a great point about corn requiring huge amounts of water, sunshine to grow. It also requires a lot of fertilizer. This week’s BusinessWeek edition (April 14, pp. 16) noted that sulfuric acid has jumped from $90 a ton to more than $300 a ton due to the ethanol boom. Sulfuric acid is a huge culprit of acid rain (http://www.npi.gov.au/database/substance-info/profiles/78.html) and mining it has huge health risks. Demand had been diminishing for it until the ethanol boom.

      Yesterday at dinner, our friends whose parents own a ranch noted their parents were also being impacted greatly as prices for livestock have come down because of the rising cost of feed.

    • Loni Kao Stark

      Great comments – thanks for visiting our blog.

      You bring up a great point about corn requiring huge amounts of water, sunshine to grow. It also requires a lot of fertilizer. This week’s BusinessWeek edition (April 14, pp. 16) noted that sulfuric acid has jumped from $90 a ton to more than $300 a ton due to the ethanol boom. Sulfuric acid is a huge culprit of acid rain (http://www.npi.gov.au/database/substance-info/profiles/78.html) and mining it has huge health risks. Demand had been diminishing for it until the ethanol boom.

      Yesterday at dinner, our friends whose parents own a ranch noted their parents were also being impacted greatly as prices for livestock have come down because of the rising cost of feed.