28 September 2014 - Food vs. Fuel, Myth not Fact

Let me refresh your memory. Remember three or four years ago when we started to ramp up production of ethanol, there were consumers, consumer groups and even agricultural groups who said - “Hey, we should not be taking a livestock feed and a human food and putting it into our gas tank. We can’t afford food and fuel, so let’s quit using corn for energy.”

It became a rather intense argument. Livestock producers even joined in attacking another part of the agriculture community and blaming ethanol production for forcing their feed prices higher, and ultimately, food prices higher. There were other factors, of course, including the drought of 2012. Yet, I said then and I have been saying this for decades, there is not enough food in food to affect the price.

There is not enough wheat in a loaf of bread to make the price of that bread move dramatically. I well remember when Earl Butz was Secretary of Agriculture and he would come on my TV show with a loaf of bread, peel off two slices and say “This is the part of the loaf that goes to the wheat farmer, the rest goes to workers in energy, transportation, processing, wholesaling, retailing and a little bit of profit, but a lot of people make a living off this loaf of bread besides the farmer who grows it.” The same can be said for corn in corn flakes and nearly every food product.

Now a study by the Renewable Fuels Association should finally put this food vs. fuel myth to bed. The report compared corn prices to the price of dairy, pork, beef, poultry and egg products from January 2007 thru July 2014. Here is what the study said - “While corn prices have dropped dramatically over the past two years, retail food prices of dairy, pork, poultry, eggs and beef have remained steady or continue to increase. Fluctuations in corn prices do not significantly affect consumer food prices.”

For example, corn hit a record high of $8.49 a bushel in the drought year. It is now in the low $3.00-a-bushel range. That is a drop of at least 60%. Have you seen that kind of a drop in food prices at your local supermarket? Of course, you haven’t. And if you are a cattle producer, have you seen that kind of a drop in cattle prices in the last five years? I don’t think so.

Sterling Smith of Citibank chimed in on the report. He said - “Corn prices may have come down 50% from their highs, but that doesn’t mean a box of corn flakes will fall 50% in price. Much of the price of food comes from the processing and movement of food.”

For example, the study showed retail ground beef prices have steadily and smoothly trended higher over the past 7 years, showing no obvious response to wide swings in corn prices.

So, it’s time to stop blaming corn used for ethanol for higher food prices; it’s time to stop the infighting inside the agricultural community and it’s time to put the food vs. fuel myth to bed, once and for all.

My thoughts on Samuelson Sez.