What’s That Have to Do With the Price of Corn?

The rising price of corn due to ethanol demand will have a variety of unintended consequences. As noted earlier on this blog, it might even make Americans skinnier, since food manufacturers may start using a cheaper (and less fattening) substitute for corn syrup.

Along these same lines, I heard a story not long ago at an event full of bankers and currency traders. It should be said that there was a good bit of drinking going on at the time — but it should also be said that the story probably would have been just as well-received even if everyone had been dead sober. It goes like this:

One night, a trader gets home from work, late as usual. As he’s getting undressed in the bedroom, for some reason he is overcome by curiosity and decides to go snooping in his wife’s dresser. In the very first drawer he opens, he discovers something truly strange: $12 in cash and three loose kernels of corn.

Downstairs, he admits to his wife that he went snooping.

“Oh, so you found it,” she says.

“Yes,” he says, “but what is it?”

The husband and wife have not been close for years, and now the wife admits that she has had affairs, and that in remembrance of each affair, she stashed a kernel of corn in her drawer. The husband is taken aback, but also relieved. He, too, has had affairs — and so he says, quite slickly: “Well, look, I’m willing to forget about all this if you are.” After all, he has had far more than three lovers on the side.

“Fine,” she says.

There is an awkward silence. Then he asks: “But what about the $12 in the drawer along with the corn?”

“Oh, that,” she says. “When corn hit $4 a bushel a month ago, I decided to cash in.”


Bah duh da dah dada....bwaaaaaaaaaaa


I don't necessarily believe this will make Americans skinnier. If a substitute is involved (and there are always substitutes), wouldn't it make America even fatter?

For instance, look at longer shelf-life foods and produce. The reason the food is preserved for so long is because of the cheaper (and more fattening) ingredients. Same thing with fast food. Cheaper substitutes = more fat.

Take the pricing of food in general: fruits and vegetables (healthy food) usually tend to cost more than cookies and chips (unhealthy food). Maybe I'm off base here but it's just a theory.


I've heard variations of this joke when I was actively trading grains. One includes a trader's wife showing him a brand new sports car and when asked how she got it, she told him that she earned it while "husking corn" while he was so busy and obsessed with making money.

On a serious note, Brazil is not the only country that has advances ethanol production from corn and sugar cane. South Africa also made huge strides in trying to be self-sufficient in energy when there were embargoes imposed due to apartheid. This is another angle that is worth exploring. As far as the hydrogen economy is concerned, we don't need to re-invent the wheel but take a look at Iceland and learn how to scale their production and distribution system.


Since John Allen Paulos isn't a regular commentator on this blog, I thought I'd chime in with some numeracy to ruin the joke (which I enjoyed, by the way, despite its familiarity).

$12/$4 per bushel = 3 bushels

1 bushel of corn weighs about 56 pounds and contains about 72,800 kernels (at least - I assume a bushel would include the cob and husk, but let's leave that aside for now)

72,800 kernels/bushel x 3 bushels = 218,400 kernels, +3 = 218,403 (and how big is this drawer that it held 168 pounds of corn -- and how apathetic is her husband not to have noticed?)

218,403 kernels = 218,403 lovers/affairs/love-making episodes

218,403/365 days in a year = 598.364 years of one lover/lovemaking episode per day. I doubt they're that old.

So, assume they've been married but not close for 30 years:

30 years x365 days/year = 10,950 days

218,403 affairs/10,950 days = 19.945 lovers/day. Every day. For 30 years.

Love the blog, though. :-)

Best regards,
Adam Frank



"Cheaper substitutes = more fat."

The idea is that corn syrup is more fattening than any possible substitute, which in this case sugarcane is the likeliest substitute. Your correlation is a bit off because, up until recently, corn syrup was the cheapest sweetener product in the US. It's not being replaced by an inferior, fattier product, but by a superior product that is now relatively cheaper.


Another question is whether the rising price of corn will enrich Latin America, which depends much more on corn for subsistence, or cause more poverty. It's not just our waistlines which matter.



Latin America is not that great of a producer of corn. In fact, Mexico is a net importer of corn, buying a large amount from the United States. So, no enrichment here...


Coca-Cola is already planning to rotate out of corn syrup and into sugarcane because of cost.

This brings up a discussion I was having today with a colleague about $80 oil and whether or not technology always evolves when a commodity becomes too expensive to continue to use. Hybrid car demand and electric alternatives are a direct response to the price of oil. Fiber optics were invented when the price of copper became too high. And if this correlation exists that in the end, commodity prices, while finite in quantity and seemingly built to become more expensive as they become more scarce, actually become cheaper over time because technology relieves our dependance on, and demand for, that commodity. Maybe this is obvious stuff, but my colleague insisted that there was no top for oil so I brought up this argument.


Adam Frank-

That's what makes the joke funny. Your over-ANALysis killed it. s

Caleb Powers

This joke has made the rounds among "country" comedians for years, only instead of corn, the commodity was eggs, and every time the wife got a dozen, she sold them. Jerry Clower does a particularly good version of it.


"Fiber optics were invented when the price of copper became too high. "

Ah what?!?! Fiber optics came into being because copper sucks as transmitting signals over long distances. Fiber optics was a great advance to resolve coppers limitations.

If you stated that the installation of fiber optic cable has increased because it has become more cost competitive against copper due to price of copper going up - then you may have an argument. But fiber optics was not in no way invented because of the price of copper.

W P Gardner

The claim about making us skinner is, I think, related to the as-yet unproven claim that high fructose corn syrup distorts the way your body processes calories and makes you fatter. The claim (and I believe it) is that this is one of the factors making Americans fatter since the 1970s. I was a fat child and teenager in the days of sugar, always one of the one or two heaviest boys in my class. But I would not even place in a classroom today, as the fattest children are much fatter than we were then. (I have since then lost some weight and I don't even count as fat at all today.)


The economic and financial landscape of 2007 bears striking similarities to 1929. Back then, there were large, unregulated pool operators and other insiders constantly muscling the tape in whatever direction they chose. The public, too, was involved, thinking the country was experiencing a new era. Meanwhile, business began deteriorating in the spring of 1929, though the partying in stocks lasted until the fall.

'Only Yesterday'
To give you a flavor of those times, I'd like to quote from Frederick Lewis Allen's "Only Yesterday," which is one of my favorite books about 1929: "Mergers of industrial corporations and of banks were taking place with greater frequency than ever before, prompted not merely by the desire to reduce overhead expenses and avoid the rigors of cut-throat competition, but often by sheer corporate megalomania. (My emphasis.) And every rumor of a merger or a split-up or an issue of rights was the automatic signal for a leap in the prices of the stocks affected -- until it became altogether too tempting to the managers of many a concern to arrange a split-up or a merger or an issue rights not without a canny eye to their own speculative fortunes."

Obviously, I don't need to point out how similar that is to the practices we are seeing today.

Giant footprints of the funds
Today, too, there are pool operators, in the form of leveraged-buyout (LBO) and hedge funds, both of which borrow money to invest. And, just like their predecessors, who ignored macroeconomic and corporate deterioration, they are partying as never before. In reading the following passage from Allen's 1931 book, you have to remind yourself that it's a portrait not of 2007 but 1929:

"One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion."

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I think that for this current cycle, "promoter" should be changed to "hedge fund."

Macro-myopic Wall Street
Turning to the economy, Allen wrote: "Though the shelves of manufacturing companies and jobbers and retailers were not overloaded, the shelves of the ultimate consumer and the shelves of the distributors of securities were groaning. Trouble was brewing -- not the same sort of trouble which had visited the country in 1921, but trouble nonetheless. Still, however, the cloud in the summer sky looked no bigger than a man's hand."

That's where we are now. The economy continues to deteriorate under the surface. Proof that its engine of strength, the consumer, is faltering? Problems cited by many large retailers, whether that be Wal-Mart Stores (WMT, news, msgs), Sears Holdings (SHLD, news, msgs), Target (TGT, news, msgs) or various purveyors of specialty goods. And, when The Home Depot (HD, news, msgs) lowered expectations last week, it chose the politically incorrect words -- "housing slump" -- to pinpoint the source of its troubles.

Meantime, the stock market is powered by gargantuan speculative forces. With every day and week that passes, speculation becomes that much more intense. (I was amazed to find out that trading volume on a recent Thursday in China eclipsed all the rest of Asia combined. Not that trading volume is always a perfect measure of speculative activity, but in this case, I think it probably is.)

Video: Moving the markets
In this cycle, I don't believe we'll get to the point where the public is back to claiming it's a new era. That was done in the 1998-2000 go-round, and only the real-estate mania saved it from an extraordinary amount of post-stock-bubble pain. The public won't be back -- because its money is tied up in real estate, which will continue to sink.

No magic LBO bullet
Make no mistake about it: The tightening of credit has (and will) radically alter the housing market -- witness the softening of home prices nearly everywhere in the country as inventory builds and sales slow.

The deteriorating economy is a process that has a long way to go, even though Wall Street tries to throw a party every day that bad news does not absolutely pummel it into submission. No amount of hedge-fund and LBO speculation is going to make the average consumer whole again. Thus, I continue to see no way forward other than a recession and, at some point, a dislocation in the stock market.

Until the transient success of speculation comes to an end, I encourage folks to think about that ultimate unraveling -- making sure they can either explain to themselves why it is not very likely or, if they expect events to unfold as I do, have a plan for preparing and/or reacting.

History brings the future home
Finally, although it's impossible to predict the timing, I am certain of one thing: When this unsustainable environment finally ends in tears, people will ask, "How could we have known?" -- when all that would have been required was a little understanding of financial history.



Good Joke. Good Math, too, #4.


Adam Frank is wrong- the 'wife' was Wilt Chamberlain
"a cheaper substitute for corn syrup"?- I thought the reason it was used was that there wasn't one


What kind of impact does Yom Kippur, a large population fasting for a day, have on the economy? Obviously there is a marginable drop in demand for food in that one day, but does supply adjust for this?


"unintended" consequence? I think not. I believe that the corn lobby (which is very strong, no?) knew exactly what it was doing when it started to push the concept of ethanol... namely, made the cost of corn rise. Actually, not only corn, but now all farm products. Very canny people.

Personally, I avoid products with high fructose corn syrup (well, except for the occasional rum & Coke... I'm not crazy, after all).

c. perry

South America and the "sugar islands" of the Caribbean could easily supply all of our ethanol needs if we allowed. Remove the fifty cent a gallon tariff and there you are, a corn free source that is eight times a efficient as corn.


Important to note that this leads to rising prices for ranchers who raise cattle and other livestock. Rising corn prices leads to rising meat prices which, depending on your views on fitness and the health aspects of red meat, could lead to skinnier people.

Rita: Lovely Meter Maid

I, personally, have come to embrace both my inability to do math, as well as my raging sweeth tooth. The former, I just ignore and let others do the figuring for me, (thanks, #4) the latter I treat with liberal doses of Splenda.