A Windfall Profits Tax on Corn, Soybeans, Wheat?

Includes: DBC, GSG, USO
by: Mark J. Perry

Crop price increases above (click to enlarge) are from the Chicago Fed's August 2008 Agricultural Newsletter, and crude oil is from the St. Louis Fed.

What about a windfall profits tax on corn and soybean farmers? After all, the prices for their products have increased more than oil over the last year, 69% and 88% for corn and soybeans vs. 61% for oil. And compared to two years ago, corn (162%) and soybeans (153%) have increased more than two times as much as oil (59%), even more reason to impose a windfall profits tax on Big Corn and Big Soybeans. And don't forget wheat, it's increased in price by 92% over the last two years, so let's impose windfall profits taxes on Big Wheat.

As Dean Baker explains:

Oil companies [MP: add corn and soybean farmers here] are making enormous profits at present because oil [corn and soybean] prices went up far beyond what almost anyone had anticipated. In other words, Exxon-Mobil (NYSE:XOM), Shell (NYSE:RDS.A), and the others [Big Corn and Big Soybeans] had not anticipated $120 a barrel oil [$5.50 and $12.50 per bu.] when they undertook their investments [bought farm equipment and farm land] 10-20 years ago. They would have made a fine profit if oil [corn and soybeans] had stayed in the range of the $30-$40 a barrel [$2 and $5 per bu.] they anticipated when they made their investments. The gap between the return they expected and the return they are getting because of unanticipated events is what economists call a "windfall.

In other words, any argument in favor of windfall profits tax on oil could also be made for any commodity, like corn and soybeans, whose prices "went up far beyond what almost anyone had anticipated." Windfall profits taxes for Big Corn, Big Soybeans, and Big Oil.