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Should We Just Accept And Adapt To Ethanol?

"Accept and adapt" has certainly been the rallying cry of leading management gurus regarding the government-created ethanol boom. These experts have a valid point.

"Accept and adapt" has certainly been the rallying cry of leading management gurus regarding the government-created ethanol boom. These experts have a valid point.

The reality is that the industry is shifting from a $2/bu. corn market to a $4/bu. or higher corn market. That's arguably the biggest structural change to our business ever experienced. It makes the move to boxed beef, the branded revolution, selling on grids, and the like seem insignificant by comparison.

Certainly, operations that embrace this new reality and adapt to fit this new environment will be in the driver's seat. No one involved in studying the political environment in D.C. is predicting that U.S. policy on subsidies, tariffs and mandates is going to be reversed in the near future.

In fact, the latest farm bill indicates that, if anything, the momentum is growing. So I agree that complaining about the ethanol mandate and refusing to adjust to the new reality makes no sense. I also subscribe to the theory that most producers are better served by focusing their attention on factors they can change and that will directly affect their operation's profitability.

However, I disagree strongly in the "just shut up and take it" mantra. Yes, I'm well aware of all the wasted effort of the last several years by people who allowed themselves to believe they can reverse the economic realities of the marketplace. And, yes, everyone should be building their operational strategies around the new reality created by the ethanol mandates and subsidies.

But there's an important difference that needs to be mentioned. Nobody seriously argues that ethanol makes economic sense from an economic or environmental standpoint, or even from the standpoint of weaning us from our reliance on foreign oil. Principles are important as well, and they need to be defended, not only because the ethanol mandate changes the size and structure of our industry, but because it has lasting repercussions for the generations that will follow.

Without question, many cow-calf producers are benefiting from the current policy, and their support of it is understandable. Thus, it's also understandable why the industry's voice has neither been very loud nor very clear. It's also undeniable that we're too small politically to overcome the momentum of this policy.

Nor is it wrong to feel great about the windfall profits that American farmers will experience as a result. Lord knows they deserve them. And from a government perspective, it could be argued that these subsidies are defensible as they replace other subsidies. And that, while the cost to society increases, the burden is shifted from government to other sectors and to consumers.

But putting all that aside, the reality is this policy selects a winner in the marketplace contrary to what the marketplace would decide if it were allowed to function properly. That's more than just being anti-capitalist and free market; it's a gigantic move toward government control of the marketplace.

The analysts advocating the "just grin and bear it" mentality are only partially right. From a business perspective, they're 100% correct; from an industry standpoint, that type of mentality is a disaster.

It's not hard to find examples of this mentality wrongfully applied in other areas. How about: "I sell them at weaning, what difference does it make if they get sick or if they don't perform for the feeder, packer and consumer?" or "Hitler only wants Austria and Poland, and then he will quit."

This industry can't afford to be pacifists or appeasers when the principles that the success of our industry rests upon are challenged. Nor is it good economic sense to allow one segment of ag to be chosen over another.