Tuesday, June 8, 2010

Grain Elevators: How Corn Gets Distributed

I know the past few posts have been rather monotonous. While learning about corn (and other food) can be boring, I think it's important to know this history because how else would you know that leftovers from WWII are being used to make your food? Or that corn makes up a lot of processed foods? It's good to know that corn has taken over and that the government should take a lot of the blame. This post is also about corn, but I promise that soon I'll take a break and post about something else.

The corn that George Naylor, and most other farmers, grow is called number 2 field corn (so distinguished as the "lowest common denominator"- the moisture content is no more than 14% and fewer than 5% exhibit insect damage). While it looks like the regular corn we're used to seeing on the table, it's different. In order to eat it, the kernels must be soaked in water for several hours, and then once you bite into them, you don't taste corn, but lightly corn-flavored starch.

In the 1850s, commodity corn was invented in Chicago. Before, quality corn was grown on farms and transported in sacks bearing the name of the farm. Farmers not only cared about their crop because their name was represented, but also because they weren't paid unless they had a satisfied customer, customers who were able to sample their goods before paying and sought criteria like "big ears, plump kernels, straights rows, various colors, and even the height of [the] corn plants." With the invention and spread of the railroad, it seemed like a good idea to get rid of the sacks and transport all the corn together in the train cars. In 1856, the Chicago Board of Trade instituted a grading system so that customers could be assured that any number 2 corn was good. The grading system's standard specified acceptable levels of insect damage, dirt and extraneous matter, and moisture. Since no one cared about the quality of the corn anymore, it obviously declined. Bigger yields were in.

When farmers take their commodity corn to the grain elevators (pictured above), all the corn gets mixed together, regardless of whether or not it's pesticide free or genetically modified. It all goes in the same mix that gets sent out across America (and parts of Mexico).

Regarding costs (and briefly going back to government subsidies), farmers get a check when they drop their corn at the grain elevator.with that day's posted price per bushel. Farmers get a second check from the USDA: twenty-eight cents/bushel, plus more if the price of corn drops. In the example I previously used in another post, the target price for corn was $1.87, but it was only selling for $1.45 (keep in mind it costs about $2.50 to plant and raise it). The government sends a check making up the forty-two cent difference.

So what do all the subsidies really mean? We're paying farmers roughly $19 billion per year for a system that's designed to keep production high and prices low. By giving out subsidies and direct payment (instead of loans as we previously did), we're encouraging farmers to grow as much as they can as fast as they can and dump it all on the market as soon as they can, which, of course, drives prices even lower and we pay out more subsidies.

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