What is in this article?:
- The national media sensationalizes corn supply issues and reports misinformation.
- The current drought is easily the worst in our lifetimes, and many will suffer because of it. In particular, the livestock industry is being hard hit and with high feed prices and short supplies.
Corn causing price increases
3. $8 corn is causing massive food price increases. Not yet. $8 corn is a market-clearing price. Very little corn has traded, or is trading, at $8. Ask any group of corn producers to raise their hands if they have sold much $8 corn and you will get few hands raised. Instead, ask how many have sold $5 or $6 corn and almost all will sheepishly raise a hand. Why? Most have agreed earlier in the year to sell their corn at a set price, and up until June of this year, we expected prices to be declining because of an anticipated very large crop. Food manufacturers who raise prices now and blame $8 corn are simply being opportunistic. It is too early in the cycle for $8 corn to have had impact on food prices. Next year, yes; and for livestock producers, yes. But remember that livestock producers are currently in a liquidation phase and so in the short-run, meat prices should be coming down. Also, recall that at $4 per bushel, there is 6 cents' worth of corn in a box of corn flakes. At $8 corn, there is 12 cents. Farmers, as USDA research indicates, are only getting 14 cents out of each dollar consumers spend on food. Don't blame them for higher food prices.
4. Without ethanol, we would have 4 billion more bushels of corn for feed and prices would be a lot lower. False. Without ethanol, we would not have planted 96 million acres of corn this year and there would not be the extra 4 billion bushels of corn available. About 11 million acres of corn would probably not have been planted without the RFS. Believe it or not, farmers are rational economic beings. They respond to market signals. Over the past five years, the market has rewarded them for increasing their corn production and they have invested in better seed technology, larger equipment, more grain storage and so on, and the result has been more productivity. The entire ag sector - including the food and livestock industries-has benefited, and as a result that extra 3 billion to 4 billion bushels were produced. Without the ethanol market, there would not have been the demand signals and economic rewards and incentives to invest in productivity, and it would not have been produced. The drought would have been the same on fewer corn acres and with less productivity, the drought would have had the same impact on prices and feed availability - or worse. On fewer acres, we would probably have about 2 billion fewer bushels than the current USDA estimate for this year.