Published: May 08, 2008 04:27 pm            

Crash course in economics and distillers grains broadens perspective

When this column plunged into the waters of oil prices and food shortages a week ago, the water got deep fast. Some Daily Telegraph readers have helpfully provided me some e-mails since then to help me identify some of the currents in those waters.

We’ll begin with a disclaimer, better late than never. I’m not an economist. I avoided taking Economics 101 as an undergraduate, which was in retrospect a mistake on my part. To be truthful, I exhausted just about my entire spectrum of business knowledge three columns into my very short career as this newspaper’s business writer.

Supply and demand is a concept so simple that laypeople have no trouble understanding it. Alas, the business world is very seldom that simple — and the bigger the commodity, the more variables work their way into the equation.

News flash number one: International oil pricing is complex. Part of the high cost of a barrel of oil in U.S. dollars comes from the fact that we’re buying them with U.S. dollars, which aren’t doing well against other currencies.

A geologist working at a nearby university e-mailed me a graph prepared this spring by the American Geological Institute (AGI). As oil prices began a big, continuing rise since early 2003, the gap has widened further and further between oil bought with dollars (expensive) and the price in Euros, the standard European currency (cheaper).

The price of oil might only be $65 a barrel today if the dollar had remained strong, it concluded.

Since many oil-producing nations use the U.S. dollar as the basis for their own currency, the value of their money has been dropping as well, and they’re charging more for their oil to recoup some of the lost purchasing power. A result is that the price of oil here in America “can, in turn, further weaken the dollar,” according to the AGI. “Resource economics is a complex feedback loop,” it said.

Supply, demand and feedback loops. My education in economics has just started. But, so has my introduction to agribusiness.

My next lesson was about distillers grains, which is a by-product of the creation of ethanol. There’s a website devoted to the product (distillersgrains.org) and even a Distillers Grains Technology Council, run by a Mr. Staff (no, I am not making this up) at the University of Louisville.

As I understand it (and I’m sure someone will correct me if I’m wrong), proteins, fats and other stuff that cows need to eat are left behind after ethanol is extracted from the starch in field crops.

This stuff, in a dried form, is easily shippable to farms where it can be combined with feed to improve, say, the productivity of dairy cows with less chance of an ailment known as rumen acidosis.

It even improves the amount of digestible phosphorus in a pig’s diet, which is a good thing.

But wait. This column is starting to sound like tips from your local extension agent. (No harm meant to extension agents, of course. Y’all don’t need to start sending me e-mails, too.)

To cut to the chase, this whole distillers grain thing counters the simplification, popularized by some network news writers and contained in this column last week, that food crops are being sacrificed wholly and completely in order to put ethanol in our cars and trucks.

Of course, there’s more than one way to go about corresponding with columnists, and e-mailers represented both extremes this past week. The geologist was scholarly, and gentle in suggesting that the AGI analysis “may be of interest.” The gentleman who tipped me off about distillers grains told me “you are 100 percent wrong in your assumption” about ethanol and bluntly advised me to “stick to sports.”

Yep, I’m no economist, but I’m determined never to stop learning. And as my farmer friend Luther would say, “You’ll catch more flies with molasses than with vinegar.”

Tom Bone is a committed lifelong learner as well as a Daily Telegraph columnist, sports writer and editorial cartoonist.

        

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