Fat Al Gore Colludes with Banksters in the Midwest

There’s an ominous storm brewing in flyover country that may amount to little more than higher food and fuel prices, or may amount to something else.

First there’s the drought. Last week’s heat wave and the last month’s dry weather hit just as much of America’s corn crop was set to pollinate. And if the corn doesn’t pollinate, it never grows kernels. Even as I’ve been writing this post, USDA sharply cut forecasts for the corn harvest.

As a result, corn prices (soy prices too) are rising sharply. Which will, for better and worse, have repercussions on all the aspects of our super-processed life that relies on corn.

“The drought of 2012 will be one for the records,” said Peter Meyer, the senior director for agricultural commodities at PIRA Energy Group in New York, who forecasts a drop in output to 11 billion bushels if the hot, dry spell lasts another three weeks. “Whether it’s ethanol or livestock, no one is immune from this impending disaster. The ramifications will be widespread, affecting everything from your food to your gasoline.”

And all that’s before any follow-on effects, if the drought continues. Even in Grand Rapids, we’ve had some unusual fires. Rivers that were experiencing historic floods last year are approaching record lows this year; traffic on the Mississippi has already slowed.

Yet all that–even with our country’s industrialized reliance on corn–might be no more concerning than other droughts, such last year’s drought in Texas.

Meanwhile, banksters keep stealing farmers’ money–first via MF Global and now with Peregrine.

The U.S. futures industry reeled as regulators accused Iowa-based PFGBest of misappropriating more than $200 million in customer funds for more than two years, a new blow to trader trust just months after MF Global’s collapse.

Centered in the heart of farm belt, the firm handled agricultural futures accounts for a number of clients who grow corn, soybeans and cotton.

“For the farmers who are directly affected it can be a very severe financial blow,” said Dave Miller, director of research for the Iowa Farm Bureau.


Doug McClelland, who runs Plains Commodities, a one-man brokerage in Lincoln, Nebraska, with about $500,000 in accounts at PFGBest, said three of his farmer customers had already sworn off futures trading after first losing money to MF Global.

Initially, the customers said, “We’ll give it one more shot,” McClelland said. Traders and exchange officials have said the collapse of MF Global does not seem to cast a lasting chill over market activity. Now, says McClelland, they feel that “somehow the public’s money is becoming a depository for a CEO.”

I’m sure the percentage of farmers affected by these two scandals is relatively small. But farmers are one of the groups for whom futures really do serve an important purpose, but trust is likely to crumble quickly after these two scandals.

Note, this article quotes Debbie Stabenow talking tough about fixing this problem; having Stabenow Chair the Ag Committee is far better than the alternative on a number of fronts, but getting tough with banksters–particularly in an election year–is not one of them.

Then there’s this. While the rest of the real estate market was in doldrums in the last few years, the Midwest has had a farmland bubble based in part on banksters’ need to invest somewhere but also on farmers’ revised assumptions about the profitability of farms based on the same crops being affected by the drought.

Part of what has economists and rural bankers on edge is that Midwest farm prices are climbing at rates last seen in the go-go 1970s, the period that set the stage for the farmland bust of the 1980s, when prices sank by half. The bust ignited a rural crisis that pushed many farmers out of business and hundreds of their banks to the brink of collapse.

“Land prices are too high. Things are getting out of whack” said Michael Swanson, an economist at banking giant Wells Fargo & Co. He figures that Midwest farmers have historically bought an acre of land for the value of corn it can produce over four years. Now, an acre of land easily fetches six years of crop production—at a time when crop prices are well above historical averages.

The Federal Reserve issued a memo to farm bankers in late October warning that the market for cropland “may reflect overly optimistic long-term expectations” and that land values would fall if interest rates increase abruptly and farm profits shrink.

Land values are soaring again because prices for crops such as corn and soybeans are more than double what they were before mid-2006. That is thanks in large part to a surge in demand for food from China’s expanding middle class and the rapid emergence of a corn-to-ethanol industry, which now gobbles up 40% of the nation’s corn crop and supplies about 10% of the nation’s gasoline. The Department of Agriculture estimates that net farm income, a widely used measure of profitability, will jump 28% this year from 2010, to $100.9 billion.

I, frankly, have no fucking clue how the drought and futures crisis will affect the bubble (which really continued until early this year). But you need crops to make farmland–particularly expensive farmland–pay off. And a lot of farmers aren’t going to have their expected crops this year.

As I said, all this may amount to no more than another big spike in food prices, with all the detrimental effects that will have on those struggling in this terrible economy.

But a lot of the states where this storm is brewing also happen to be the swing states where the Presidential election will be decided (to say nothing of the western drought-affected states like CO where this has manifested as massive wildfires). So it may well have repercussions beyond just the farmers who stand to lose their farms and the poor people who will struggle to pay for food.

11 replies
  1. klynn says:


    I think you could take this and do an in-dept series like you did with the auto industry. With the Farm Bill issues in the news this week, it may be quite helpful.I am deeply concerned as to what these conditions will do to flyover country. I am a bit concerned it could have impact on the scale of the auto industry in terms of tier one, two and three providers in the ag industry and then the impact on our food security from the standpoint of food affordability. I just wrote about how I would be willing to pay a tax increase to protect farmers and our food supply chain as well as our food program to those in need.

  2. Jim White says:

    It would serve the banksters right if they really get burned on this one.* After all, short term control over where and when it actually rains is one of the few variables that they can’t control in order to extract loads of money. They are, of course, behaving in ways that contribute to long-term climate change, but that is merely a byproduct and not overt policy since it is a consequence that occurs later than today’s close of the markets.

    *But when they get burned, guess who has to bail them out? Again!

  3. par4 says:

    Stabenow isn’t going to do shit. She’s just another useless fucking Democrat.As long as the Republicrats retain political power the destruction of this country will continue.

  4. emptywheel says:

    @Jim White: I think it more likely the farmers will lose their newly expanded farms and the banksters will be absentee landlord farmers.

    You know. Feudalism.

  5. ondelette says:

    This is the article that was referenced by the NYT article this morning:
    It uses a model of calculating probabilities that global warming contributed to individual extreme events, by examining underlying causes for a small set of events, and looking at the causes in ceteri paribus fashion (holding all other influences steady while examining each one). The hope is to allow the dialog to start on classifying individual events for the public a little better.

    The problem with the ceteri paribus method is that it’s essentially adiabatic, which has big problems unless each variable can be considered that way and unless the variables can be decoupled and the system is integrable. An example which isn’t particularly realistic, but gives the effect of one which can’t be separated: Decoupling economics, if there is a drought, one assumes that what one must consider in a meteorology model is the heating of the ground, the humidity and pressure of the air, and the surrounding weather patterns. Not considered are the fact that speculation will drive up food and fuel costs which will have an effect on the economy, which in turn will change the balance of fuels consumed. Further, the heat will add consumption of natural gas, since most air conditioners in developed countries run on electricity and depending on the placement of the drought, this will be the source of energy for the electricity. Elsewhere the drought may cause deforestation for fuel as fuel prices soar, and lack of planting will change irrigation patterns which change the effects on the water table, together affecting the humidity locally, and the amount of CO2 pumped into the air, the placement of aerosols and fine soot and its assimilation into the brown cloud, which affects the change in the cyclone cycle in the Arabian Sea.

    And so forth. Why ceteri paribus? Because otherwise the equations aren’t integrable, and the systems might be unstable. But they might also be stable. It might affect whether or not there is a solution to the problem, though.

    (as I said, the example wasn’t intended to be realistic in every facet, just illustrate why a starting assumption of ceteri paribus needs to always be examined)

  6. earlofhuntingdon says:

    But hey, we still have no legitimate need to regulate derivatives or to mandate their sale on an exchange. Move along now folks.

  7. earlofhuntingdon says:

    “But a lot of the states where this storm is brewing also happen to be the swing states where the Presidential election will be decided (to say nothing of the western drought-affected states like CO where this has manifested as massive wildfires). So it may well have repercussions beyond just the farmers who stand to lose their farms and the poor people who will struggle to pay for food.”

    You’ll want to reprint that come October and November.

  8. noble_serf says:

    Damn. Nothing breaks the cycle does it? Socialize cost and privatize the profit is what they’ll do.

  9. tmartin says:

    If bankers wind up foreclosing on a ton of farmland, they’ll want permission to sell it to the highest bidder, even if that bidder is a foreign country.

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