24 March, 2008 - Let’s stop blaming ethanol

Frankly, I’m getting very tired of the big city newspaper headlines that basically read like this “Blame ethanol for sharply higher food prices”. And the stories go on to say that because of ethanol and it’s demand for corn, taking corn away from livestock feeders and pushing corn to record high prices, is the reason why food prices are soaring higher week after week.

Well, there are a lot more ingredients in food than just the cost of the raw commodity. Former Secretary of Agriculture Earl Butz said many times “There’s not enough food in food to affect the price”. A few days ago, a package arrived in our office that proves that point. It was sent to us by the Wisconsin Corn Growers Association and it contained a large box of corn flakes with some additional labeling on the box, words that had been added by the Corn Growers. The altered label said “This $3.69 box of corn flakes contains 10-cents worth of corn”. The rest of of the price goes to processing, transportation, processing, advertising, wholesaling and retailing.

We have a good friend who is an owner/operater of a semi-trailer and tractor who hauls agricultural products to market. We asked him to keep track for a week of what his costs are to operate that 18-wheeler and deliver those agricultural products. He informed us that the first week of March he drove 3,500 miles; he averaged 5.3 miles per gallon; bought 660 gallons of diesel fuel at an average price of $3.87 a gallon (diesel has since moved above $4.00); his fuel cost per miles was 73-cents and for the entire week, his bill for fuel alone was $2,555.00. You have to figure that into the price of food and he is just the first of several trucks that take raw food from the farm to the dinner tables of America.

If, as food processors and retailers like to say, the raw commodity price is the only reason food prices go higher, then we should see them moving sharply lower right now. For example, at the Chicago Board of Trade, May wheat went from a record $13.49 a bushel February 27th down to $9.83 a bushel going into the Easter weekend. Have you seen a similar percentage drop in the price of a loaf of bread?...I don’t think so!

So stop giving ethanol and higher farm prices as the only reasons for the higher food prices; to again quote Secretary Butz “there just isn’t enough food in food to affect the price."

My thoughts on Samuelson Sez.