Let Them Eat Peanut Butter Cups

ethanol_plant.jpgLast Monday there was an article in the Strib business section that I wanted to blog. I didn’t get to it but it worked out better in the long run.

In “Buffet Execs Scoffs at Ethanol”, it reported a discussion of ethanol at Berkshire Hathaway.

At Bershire’s recent annual meeting in Omaha, an investor asked CEO Warren Buffet for his thoughts on ethanol. Maybe because Buffet lives in corn country, he punted the politically delicate question to his right-hand man, vice chairman Charlie Munger. Munger, never one to mince words, replied that it was silly for the government to plow billions of dollars into making energy from a food staple, which might lead to higher prices of many foods.

“Running cars on corn is about the stupidest thing I ever heard of,” Munger said. “Our government is under tremendous political pressure even though it makes no sense.”

To which Buffet replied: “Well, Charlie, we’ll be sneaking you out of Omaha tonight.”

Then there was an article in this Monday’s Wall Street Journal that I thought went well with the Strib piece. I decided to combine the two blog entries.

In “With Corn Prices Rising, Pigs Switch to Fatty Snacks”, it detailed the realities that Munger implied. Apparently, the sky-rocketing price of corn due to the demand cause by producing ethanol, is forcing farmers to find cheaper sources of feed for their pigs. The new nutrition for livestock includes trail mix, cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut butter cups.

Ideally, livestock producers like to feed their pigs and cattle a mixture consisting of about 70% corn, plus soybean meal, fat and vitamins. Corn provides protein, essential nutrients and amino acids that give animals energy and fattens them up. Historically, the livestock industry has consumed 60% of the nation’s corn crop.

Thanks to the ethanol rush, the price of a bushel of corn for months has hovered around $4 – nearly double the price of a few years ago.

According to the article, it’s not just the pigs that are eating like high school students.

One farmer is now feeding his cattle a blend that consists of about 17% “candy meal”, a blend of chocolate bars and large chunks of chocolate, 3% of “party mix”, a blend of popcorn, pretzels, potato chips and cheese curls, 8% corn gluten, and the remainder corn and barley that he grows himself. Although this mix is 10% cheaper than corn, it still costs him 65 cents to put a pound on a steer, up from 42 cents last year.

Another farmer is struggling to feed his herd of 12,000 cattle. Traditionally, he fed them up to 30% corn or other grains. This year he’s using 100% potato byproducts, including french fries, tater tots and potato peels. He notes that every once and a while he sees a couple of cattle fighting over a whole potato.

So, government subsidies are making it cheaper to feed candy bars than corn to cows and pigs. Processed and packaged products have lower prices than raw grain. It doesn’t strike me as a sustainable practice.

By the way…”the stupidest thing I ever heard”…Charlie Munger is my new hero.

8 thoughts on “Let Them Eat Peanut Butter Cups”

  1. The fact that even our independently wealthy are punting politically delicate questions is an indictment of our political system. People who run to the legislatures to solve problems should remember that the best thing the legislature can do is be gridlocked so real solutions can be bubbled up from the grass roots where they can be tested on small scales first. The old saying is that “To err is human, but to really foul things up takes a computer.” In truth, to foul things up beyond all recognition, well that takes a government. The problem with centralized solutions (like the decision to use ethanol) is that when the central authority is wrong, we are all wrong … big time. As Cromwell so eloquently said, “I beseech you, in the bowels of Christ, think it possible you may be mistaken.” Well, our political action groups seem to forget that lesson as they run to the government for solutions. Thankfully, Bridgewater township seized the opportunity to take on this behemoth, lets just hope the lawyers don’t snatch this victory from the people.

  2. On a related issue. I visited the Advanced Bio energy website recently. I checked out their brochure (linky). http://www.advancedbioenergy.com/documents/equity_brochure.pdf

    The Northfield site (Bridgewater) is a done deal with construction beginning August 2007. I thought it was decided that an Ethanol plant was not permitted due to the new zoning ordinance. Does local government have a say any more? What is going to happen next?

  3. In the Source section of the Star Tribune today, there is an annoucement “not pumped? Ethanol plant could land near Northfield, and not everyone is pleased. Read about it next week in Star Tribune South.”

  4. Thanks to Paul Jesh for the link to the company website. Note the Argos, IN location. There is a lot of opposition to the proposed plant there also.

    The public hearing on the Comp Plan and land uses chart held on May 16 was a fine evening of comments and questions. The hearing is continued to Wed night, May 30, 7 pm at the township hall in Dundas. The township board will hopefully be ready to vote on a final draft on June 12.

  5. Strib South rocks! Thanks for that alert, Sweetie. I heard that the reporter, Sarah Lemagie, was going to interview Kathleen Doran-Norton for the story. I wonder who else she talked to?

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