Talking points on corn, ethanol and food prices

Have your Sunday dinners with the city cousins been a little tense lately? Are you being bombarded with accusations that your corn price and ethanol production had made it almost impossible for Aunt Martha to afford her morning corn flakes, milk and even her popcorn at the movie theater?

Here is a collection of helpful information to arm yourself with next time you drive into town.

Grocery Manufacturers Put Forth Hype
By Rick Tolman, Chief Executive Officer
National Corn Growers Association

Regular readers of this column know I am proponent of biofuels and its benefits to our environment, economy and energy independence – and a proponent of agriculture solutions to help ease our energy woes. I am also an outspoken advocate of representing issues fairly and accurately.

I respect there are two sides to every issue and the media is the outlet for presenting those sides. However, as a keen media observer, it’s apparent the incline of the media slant is increasing. Maybe it’s the 24-hour, up-to-the-second news cycle. With such pressure to deliver, it seems fact checking has slipped. This past weekend the New York Times ran a story on bloggers feeling the stress of delivering news-breaking content in such a rapid-fire manner with some even going so far as to suggest a quiet news period each day.

Now there’s an interesting concept. Just imagine how that might reduce the media hype. The hype such as that put forth by the Grocery Manufacturers Association claiming corn for ethanol is the force behind rising food prices. Never mind the fact that the price of a barrel of oil is at an historic high and climbing. Never mind that economists tell us that a $1 increase in gasoline will squeeze your food budget two to three times more than a $1 increase in a bushel of corn Never mind the fact that a Merrill Lynch economic analyst told the Wall Street Journal that ethanol has helped ease fuel prices by 15 percent. Imagine, if you will, the impact to your food bill of another 15 percent increase in the price of a gallon of gasoline.

The GMA has a short memory as it is the same group whose members fought to stop development of drought-resistant biotech wheat. Wheat supplies tightened following a drought in Australia and short supplies elsewhere. Global demand and short supply were the culprits for rising wheat prices.

And I am not the only one to see the hype behind the GMA push. The other day, I received the email below from Bill Jorgenson, a consultant for the food industry, in response to an interview in E&E Climate with Scott Faber, GMA’s vice president of government affairs. In part, his letter states:

Scott Faber's comments from E&E News shows a disregard for fact. Biofuels do not use over a third of the corn crop, the figure is closer to 20%.

A third of the price of food commodities today is due to hedge funds, as in the case of oil, playing with markets.

Rice crops have not been impacted by acreage switch to biofuels one iota. Yet their price has risen second to most.

Ask Tyson why they are diverting all the chicken and beef fat from operations into biofuels with a petrol partner, instead of having the fat going into feed for animals to give the energy needed to the animal. Maybe that is one reason feed prices went up to their own operations.

Finally the choice of "burn your lunch for a ride home" when the profit margins of the food industry have risen by 50% with price increases (all not covered by increased expenses or the bottom line would not move) is what really brought me to ask if this is to divert attention or really concern.

You can read Bill’s full letter here.

And Bill is not the only one to see through the food versus fuel hooplah. In case you missed it, Brazilian President Luiz Inacio Lula da Silva on April 3 spoke out on this issue, telling reporters: "Today there are more people who eat. The Chinese eat, the Indians eat, the Brazilians eat ... and people live longer," arguing that the growing number of mouths to feed is causing the inflation in food prices.

Producers have not lost sight of their obligation to help feed the world. Nor have the companies who are investing millions of dollars to find solutions to feed humans, livestock and ethanol plants. Our growing global population is demanding more of those of us in the agriculture sector and we have delivered.

Don’t get fooled by the hype.

Corn's Impact on Retail Food Prices: Five Truths

"What effect do these higher commodity costs have on retail food prices? In general, retail food prices are much less volatile than farm-level prices and tend to rise by a fraction of the change in farm prices."
-- Ephraim Leibtag, USDA economist

1. Food in the United States has become more affordable. Americans spend just 10 percent of their disposable income on food expenses, the USDA reports, while households in countries like India often spend 50 percent of their budget on food. Even countries in Europe spend more than twice what U.S. consumers spend on food costs. And the amount Americans have been spending on food over the years (as a percentage of their income) has decreased significantly.

2. Food price increases are overall stable. Over the years, with a few exceptions, food prices have followed or slightly trailed overall inflation. Recently, the U.S. Department of Agriculture reported that marginal increases in retail prices due to higher energy and other costs are projected to continue and lead to food price increases somewhat greater than general inflation through 2009. After that, however, retail food prices are estimated to increase at less than the general inflation rate. For some perspective, food inflation was 4.0 percent in 2007, compared to the 25-year average of 2.9 percent.

3. Farm products such as corn are a small part of the food bill. Numerous cost factors contribute to retail food prices. According to USDA, labor costs account for 38 cents of every dollar a consumer spends on food. Packaging, transportation, energy, advertising and profits account for 24 cents of the consumer food dollar. In fact, just 19 cents of every consumer dollar can be attributed to the actual cost of food inputs like grains and oilseeds.

4. Corn is an inexpensive food ingredient. At $4 per bushel, the average price in 2007, corn costs 7 cents a pound, so fluctuations in the price of corn are not often reflected in the retail prices for food items. Even a standard box of corn flakes contains approximately 10 ounces of corn - less than a nickel's worth. And while corn is a more significant ingredient for meat, dairy, and egg production, it still represents a relatively small share of these products from a retail price perspective. The USDA reports that higher corn prices pass through to retail prices at a rate less than 10 percent of the corn price change.

5. We have production and supply to meet all corn demands. Corn growers are not only growing enough corn to meet all demands - but to carry over a surplus into the next year. For 2007, that carryout was 10 percent of production. One reason for our success is increased yield, or bushels grown per acre. And also thanks to technology improvements, we are getting more efficient when it comes to producing ethanol and developing valuable uses for its coproducts, such as grain that provides good nutrition for livestock.
 

Farm Price Has Little Impact on Overall Food Price

The price of farm products has little impact on overall food prices. The farm value of the food ingredients in products you buy at the grocery store and restaurants represents less than one-fifth of the price at the checkout. That’s right—only 19 cents on every food dollar spent goes back to the farm. Other factors, especially ones that are energy related and often petroleum dependent, have greater impact.

The corn flakes example:

An 18-ounce box of corn flakes contains 12.9 ounces of milled field corn.

When field corn is priced at $2.28 per bushel, the 20-year average, the actual value of corn in the box is about 3.3 cents. At $3.40 per bushel, the average price in 2007, the value was about 4.9 cents. The 49 percent increase in corn prices would be expected to increase the price of the box of corn flakes by about 1.6 cents, or 0.5 percent.  (Source: USDA)

You can buy an 18 ounce box of corn flakes today for about $3.65.

If the corn in that box is valued at 4.9 cents, the farmgate value of the corn in that box is 1.4 percent of the cost at the store's checkout!

Corn’s Sustainability Continues to Improve!

Corn production has increased more than five-fold between 1932 and 2007. The average yield, represented as bushels per acre, went from 26.5 in 1932 to 151 in 2007.

Studies Show Corn Price Has Little Effect on Food or Fuel Prices

Taken together, the reports, from the Center for Agricultural and Rural Development (CARD) at Iowa State University and the Consumer Federation of America (CFA) show that higher corn prices have little effect on either food or fuel prices.

The CARD report repeats the conclusions it had reached in a study earlier in 2007, and demonstrates that a 30 percent increase in corn prices would increase consumer food prices by only about 1.1 percent.

The CFA study includes a stinging criticism of the oil industry for failing to use ethanol as a way to increase supplies of refined gasoline. The study notes increased use of ethanol could actually help reduce food price increases. “High energy prices cause higher food prices,” says CFA director of research Marc Cooper. “The historic corn-crude price relationship will cushion the impact that ethanol production has on food prices.” The report also said, “Based on the historical relationship between crude prices and corn prices, current prices for corn are lower than one would predict.”

Corn Surplus Is High

Finally, proof that there is enough corn to go around is evident in the fact that, every year, there is a surplus. Surplus corn for the 2007 season – the amount above and beyond demand – is projected at 1.9 billion bushels, a 45 percent increase over 2006. This surplus is well above the 20-year average and is the fifth-highest level in the last two decades.

Great Information from the National Corn Growers Association

Get the Facts on Food and Fuel:

http://www.ncga.com/news/publications/PDF/GetTheFactsOnFoodAndFuel.pdf

NCGA’s Complete Ethanol and Co-Products Web Page—
This page has more information that you can shake a stick at.. If you need to find an answer about ethanol, corn, food prices, water usage, energy balance, DDGS and more, this is the place to find it.

http://www.ncga.com/ethanol/main/index.asp

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