It's a duck...

After a while, some arguments are resolved by unfolding evidence that rides rough over all disputed nuance.

It just quacked. It just waddled.

Houston, we have a duck probem.

Deep in the heart of every corn grower, we really really knew we were pushing the system to its limits. Only we thought the limit was the giddy heights of maybe (giggle) $5. [See also: oodles of tear-stained 08 fall delivery contracts for $4.25 or less]. But even those of us who lived through 1980 or 1983 staunchly avoided imagining that type of weather-driven scenario.

“The whole corn crop boils down to what Iowa and Illinois will do…. If you have any problem with those two states, the market will explode…It’s going to take extraordinary circumstances to get through this year without major interruptions in corn production… We’ve got a mess on our hands,” added Al Dutcher, a state climatologist for the University of Nebraska, in response to questions about the possible impacts of the excess water weather disturbances. [More]

Combined with demand absolutely NOBODY predicted, you can't write a story about corn today without alluding to a "Perfect Storm". We're going to get tired of that lede in hurry.

One reason for the wrenching aftermath looming from this year's production problems could be the corn industry pattern of carefully slicing and aligning data to offer a perspective that was at odds with the larger picture. While hog producers can't sleep, corn farmers prate on about cornflakes, where all of maybe 22 bushels are used annually.

Here in SD, it seems every other slide at the National Sunflower Association meeting referred to the battle to remain competitive with ever-more lucrative corn for acres. When food processors like Frito-Lay announced a total switch to healthier sunflower oil, the industry was ecstatic only to discover they could not revise contracts upwards fast enough to entice growers.

The result: I was told this morning to read the Fritos bag now. It says "sunflower OR corn oil". I suppose corn growers could see this as a win-win, but it belies their studied overlooking of the effects high corn prices have on other commodities due to a fixed land base. This rather obvious part of the economic analysis has been pointed out by other observers, but the duck everyone else saw is now swimming in our own cornfield, so to speak.

I am encouraged by the comments by NCGA President Ron Litterer indicating at least the possibility of recognition of a problem, but that was two weeks ago and things have gone downhill. In the meantime, the scent of blood is in the water for ethanol subsidization critics.

Citigroup's Driscoll slapped sell rating on ethanol producers BioFuel and VeraSun. He said that surging corn prices will hurt profits at both companies. Corn is the major raw material used to make ethanol, and prices for the grain have surged to record highs lately.

In addition, the analyst speculated that the rally in corn prices will force some small and midsized ethanol producers to shut down production at plants over the next few months. At least five ethanol plants have been shut down as costs to run the plants are far outweighing profits, according to Driscoll. He didn't name the plants in his report. [More]

I think this may be overstated logic, but I wouldn't buy ethanol stock right now either. The point is we skated very close to our production edge and it looks like we may wreak serious havoc on our livestock industry, and for the first time it appears even oil prices cannot protect the ethanol industry completely from red ink.

This is the problem of seizing control of a market by government fiat . Certainly it was not the intention of corn farmers to literally starve our oldest and best customers, but without a free market to allocate a now scarce resource by millions of individual decisions, this act of hubris will leave ashes in our mouths even as we cash really big grain checks.