Who is CIBC World Markets’ chief Jeff Rubin?  Any guesses?  I suppose the description is somewhat self explanatory.  Earlier this year I called Jeff Rubin’s comments on the Canadian dollar irresponsible.  In June or July of this year he publicly stated the Canadian dollar would be at par by Christmas.  At the time I thought it was about as irresponsible a statement any high priced economist could make.

That shows you how adept Jeff Rubin is and how out of touch I was with the realities of the Canadian dollar.  As we all know now it didn’t take Christmas to see the loonie get to par with the greenback.  Jeff Rubin was a prophet this time.  So when he releases any type of economic forecast going forward I’m taking it seriously.

So when I saw Jeff Rubin stray onto my turf talking about “corn based ethanol”, I thought I’d take another shot as his work.  I know I’m on thin ice here, but come on.  In my other career as an agricultural econmomist I eat corn based ethanol for breakfast.

Jeff Rubin is quoted in a recent Canadian Press report regarding his thoughts about food and corn based ethanol.

The following is direct quote from that report

“The cost of everything from tortillas to cereals and corn starch will rise in Canada because America’s policy of subsidizing ethanol to cut dependence on foreign oil has led to rising demand for corn, says a report released Monday.
Corn-based staples like tortillas have become more costly, along with other grains, fruits and vegetables that are pushed aside as farmers cash in on corn, said CIBC World Markets’ chief economist Jeff Rubin.
“When you add it all up it’s fairly significant because food inflation is already well over four per cent and we would expect it to move higher as more and more corn production is diverted to ethanol as is required under President Bush’s plan,” Rubin added.
“When you overlay that with the inflationary hit from oil itself, they’re going to produce the hottest inflation numbers that we’ve seen yet this cycle.”
“If wages don’t respond, then it’s a real wage cut for most folk because there aren’t a whole lot of substitutes for food and energy,” he said. (Canadian Press Report, Oct 22, 2007)
Hmmmmmm.  I get a bit of a kick out of this stuff.  I write about corn ethanol all the time partly because I’m paid by the Ontario Corn Producers’ Association to write market commentary on corn prices.  The facts are that corn prices have decreased at least 40% from their highest levels last February.  However, prices are about 50% higher than they were 13 months ago.  In fact with the Canadian dollar being at par Ontario corn producers are not able to take advantage of higher corn futures like their American cousins.  Simply put in Canada the simplistic look into corn ethanol economics from Rubin doesn’t add up.

His argument is that the move toward biofuel by using corn for ethanol has led to rampant food inflation because the price of corn has risen from those levels 13 months ago.  He is not alone in that argument.  There is wide debate in some circles about the ethics of using food (corn) for fuel.  The argument is that using corn for fuel has led to higher corn prices, which has fueled food inflation, which of course is not good for consumers who are about 97% of the population in the United States and Canada.

Lost in this argument are Canadian and American farmers who were losing their shirt producing corn at firesale (pre-ethanol) prices.  Most farmers worked diligently to build an alternative market for their corn, which at the end of the day would garner them better profits.  With green house gases saved in their back pocket corn based ethanol looked like a real winner down on the farm.  Nobody ever thought at the farm level they’d be criticized because a box of corn flakes might cost 29 cent more.

However, food prices can be a prickly issue.  It gets prickly because at least in North America consumers are used to cheap food and lots of it.  In Canada its even worse because consumers take cheap food for granted and we don’t have the subsidy theme park that the Americans have.  So if corn flakes go up 29 cents a box, its front page news.  Even a named economist like Jeff Rubin is weighing in.

If you haven’t heard about the “food versus fuel” debate regarding ethanol and green house gases you surely will in the near future.  The “chatter” among ethanol’s many detractors is getting louder.  With oil prices soaring, ethanol blended into our gasoline is actually having the effect of keeping the price of gas down.  However, how about the future price of corn flakes?  It would seem any rise in food prices in this country especially if it involves ethanol is simply not tenable.