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08 August, 2008 - Food & Fuel Production Can Co-exist

Judging from the e-mails and letters that come across my desk, the ‘Food vs Fuel’ controversy simply will not go away. I hear from folks who are strongly opposed to ethanol and soy-diesel; opposed because they say it’s immoral to take food from the mouths of hungry people to turn into energy for our gas-guzzling SUVs. They blame ethanol for sharply higher food prices and world hunger. Then I hear from the supporters of ethanol, who say we can do both, we can produce food and renewable energy on America’s farms, something we need to do, to cut our dependence on foreign oil.

Throughout the debate, I have said the primary reason for sharply higher food prices is not the production of ethanol or the ethanol subsidy; it is the sharply higher price for crude oil that is used in every phase of agricultural production, food processing and transportation.

Now, a report from the Farm Foundation, from a symposium in Washington, DC in July entitled “What’s Driving Food Prices?”, pretty much says the same thing. I’d like to quote one paragraph from the 78-page report...“Most of the corn price increase is due to the higher oil price, not the subsidy. With no subsidy or mandate, corn moves from $1.71 a bushel at $40 oil to $5.26 a bushel at $120 oil. With the subsidy, corn moves from $2.26 at $40 oil to $6.33 a bushel at $120 oil. Put in round numbers, when crude went from $40 to $120, corn went from $2 to $6, a tripling of both prices. About $1.00 of the corn price increase was due to the subsidy and $3 to the higher crude price. As the price of oil has increased, corn-based ethanol is demanded to substitute for gasoline. At high oil prices, this would happen, with or without the subsidy.” Finally, someone puts the blame where it belongs, on high oil prices.

We need to remember something else about agricultural commodity prices, they do come down; to those food processors wringing their hands and increasing their prices (while reporting higher quarterly earnings) because the cost of the raw commodity moved higher, take note. Through the first week of August, the price of wheat had dropped 50% since February, the price of corn had dropped 30% since June and the soybean price had dropped 30% since early July. We have even seen a 20% drop in the price of oil! But we certainly haven’t seen a similar drop in the price of bread or other food products.

It is also worth noting that feed costs for cattle and hog producers have declined while hog prices have strengthened and cattle prices have remained strong. So producers, let’s get together and work together to respond to those critics and assure them we can produce both food and energy on the farms and ranches of the U.S..

My thoughts on Samuelson Sez.

 

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