Global Food Prices Jump To Record Level Because of Higher Corn Prices – or the alternate title: Cornholing the future
There’s lot of gloom and doom being pushed, trying to link food prices to climate change by the usual howlers. As shown above, food prices surged to record levels in February despite February wheat and rice prices being essentially flat. Yet, February corn prices are up significantly even with 2010 being the 3rd largest U.S. corn crop ever. Why? Well part of the reason is that our cars now have a mandated, growing and voracious appetite for corn based ethanol.
Dr. Roger Pielke Jr. writes:
When certain information proves challenging to entrenched political or ideological commitments it can be easy for policy makers to ignore, downplay or even dismiss that information. It is a common dynamic and knows no political boundaries. Global Dashboard catches the Obama Administration selectively explaining the causes for increasing world food prices:
“The increase in February mostly reflected further gains in international maize prices, driven by strong demand amid tightening supplies, while prices rose marginally in the case of wheat and fell slightly in the case of rice.”
“In other words, this is mainly about corn. And who’s the biggest corn exporter in the world? The United States…And where is 40% of US corn production going this year? Ethanol, for use in US car engines.”
So here we having wailing and gnashing of teeth by the usual suspects over global food prices, and they are using this as an example of the supposed “climate change drive food prices” link. Of course there isn’t any link in this case. It’s the corn stupid.
The simple solution: stop burning food for fuel, drill for more oil, work on alternate energy system that actually might work, like thorium based nuclear power.
h/t to C3 headlines
http://www.ers.usda.gov/briefing/corn/
* Corn is the most widely produced feed grain in the United States, accounting for more than 90 percent of total value and production of feed grains.
* Around 80 million acres of land are planted to corn, with the majority of the crop grown in the Heartland region.
* Most of the crop is used as the main energy ingredient in livestock feed.
* Corn is also processed into a multitude of food and industrial products including starch, sweeteners, corn oil, beverage and industrial alcohol, and fuel ethanol.
* The United States is a major player in the world corn trade market, with approximately 20 percent of the corn crop exported to other countries.
We already grow so much corn that we export 1/5th of our production. There is no shortage of corn for food. The real cost of corn today is about the same as it was in 1995. There is no crisis, this is normal commodity markets at work with the money moving to the high demand commodities.
Yes you are right the “peer review system” demonstrated again why it is broken and its output is useless. David Pimentel has been puking out crap studies on fuel ethanol for 30 years and still produces new and improved crap every time fuel ethanol becomes a popular target. His studies are consistently the outliers among the literature, and always low ball estimates by using outdated assumptions and data, and just plain bad study methodology (like listing his own work as a reference).
His studies have been debunked numerous times but time and again our scientifically illiterate media trot them out like clockwork (much like IPCC peer reviewed studies) every time they get a chance because his bogus results fit their agenda.
Michael S. Graboski of the Colorado School of Mines has dissected Pimentel’s studies on ethanol. The Argon National Lab studies by Wang also show his studies are outlier studies that fall well outside other literature in the field.
His studies are absolute trash!
http://www.usda.gov/oce/reports/energy/net_energy_balance.pdf
http://skyways.lib.ks.us/ksleg/KLRD/Publications/Energy_Resources/Jan_mtg/White_Energy_Committee_010606.pdf
Larry
Two factors seem to be missing from the analysis.
1) The US, UK and many other countries pay farmers to “set aside” acreage and not plant it. There are a lot of reasons for that linked to the “problem” that farmers can produce too much. The bottom line is we’re not even close to “maximum production”. People don’t starve in this world because we don’t/can’t produce enough food.
2) One of the biggest costs in food production is fuel. The rising price of oil and the increased push for more expensive “green energy” have dramatically increased production & shipping costs, which will eventually show up in food prices.
In Illinois, USA we grow lots of corn.
http://www.wikinvest.com/images/thumb/7/7b/Corn_by_county.png/400px-Corn_by_county.png
In 2010, 12.6 million Illinois acres that produced about 175 to 200 bushels of corn per acre. Just drive on I-55 between Chicago and St. Louis and you will see more corn than what you what to see. How much of this corn is grown for ethanol? About one in six rows of corn is harvested for the production of ethanol.
Perhaps I can answer a few questions about corn:
1) Why do we grow so much corn? Corn is the most widely produced feed grain in the United States, accounting for more than 90 percent of total production. Around 80 million acres of US land was planted with corn in 2010. The majority of the crop is used as livestock feed; the remainder is processed into a multitude of food and industrial products including starch, sweeteners such as high fructose corn syrup, corn oil, and ethanol for use as a fuel.
2) How has the demand for ethanol increased the price of corn? Analysis from the International Food Policy Research estimates that rising demand for ethanol caused 40% of the rise in corn prices in 2007, and caused 35% of the rise in corn prices in 2008. This is because rising demand for ethanol directly translates into rising demand for corn. Demand for ethanol is directly related to the ratio between oil and corn prices – how much ethanol can be sold for (essentially the price of oil) divided by the cost to acquire corn (corn prices). If this ratio is higher than 90%, manufacturers will earn enough money to cover the cost of building an ethanol plant and to use it. However, the US Federal government has implemented subsidies that make it profitable to produce ethanol even when that ratio is below 90%.
3) How is the price of corn per bushel compared to the price of gasoline?
http://www.agmrc.org/media/cms/Article_5_figure_2_69ABFC103ADDC.jpg
4) Can the growing of corn effect the local climate? Perhaps so states a study from the Northern Illinois University. Water is indeed a greenhouse gas, and corn throws lots of water vapor into the air during the growing season.
http://www.niu.edu/pubaffairs/RELEASES/2002/aug/corn.shtml
5) Corn is big business, and which companies will benefit from higher corn prices?
a) Archer Daniels Midland grow corn and as such benefit from rising corn prices as their crops command higher prices on the market.
b) Monsanto and DuPont produce corn seed which is genetically engineered to have properties that make it ideal for ethanol production, and seeds must be purchased yearly as they can not be taken from the corn product. They stand to benefit from rising corn prices because farmers will tend to increase the amount of corn which they plant and therefore the amount of cornseed which they buy.
c) UAP Holding distributes fertilizer, insectiside, anti fungal, and other chemicals used in farming of corn. To the extent higher corn prices lead to a boom, especially if a new chemical comes to market which boosts yield, UAPH could benefit. The main hurdle will be canibalization, if farmers cease producing a crop that requires greater use of chemicals and start producing corn which requires relatively few and low levels of chemicals.
d) Potash Corporation of Saskatchewan and Mosaic Company produce fertilizer and benefit from high corn prices as farmers use more crop nutrients to try to increase yield.
e) John Deere & Company, as the world’s largest tractor manufacturer, benefits from biofuels regardless of which crop (corn, soybeans, other grains) is ultimately used for fuel.
An ending thought is perhaps a factor in the unrest in Middle East is the high cost of food caused by high corn prices.
Corn farmers are starting to replace my house flippers which replaced my tech stock guys down here as regular customers. Before long I will only have bankers, lawyers and climate scientists.
Don Shaw says:
March 5, 2011 at 4:13 pm
Curiousgeorge says
“The corn you get for dinner is not the same as the corn you feed to cattle or chickens, and there is a specific GM variety coming on the market that is tailored for ethanol.”
I don’t follow the logic. If the fields were not diverted to corn for ethanol, wouldn’t they be dedicated to food instead?
The argument that the corn is not suitable for food doesn’t hold. The fields would be used for food if the crazy insane ethanol mandate/subsidy did not exist.
Or the farmers would be paid to keep it out of production to maintain the price, or they might grow some other non-food crop.
I did a back-of-the-envelope calculation some time ago. In order to provide the same BTU value as a fuel to completely replace gasoline, we would need to increase corn production in the US five-fold. Six-fold if you still wanted corn for all the things it’s used in.
Unless switchgrass or other sources can utilize land that is currently unproductive and requires no irrigation, as others have pointed out these will displace current food crops in proportion to their profitibility.
Gary from Chicagoland says:
“An ending thought is perhaps a factor in the unrest in Middle East is the high cost of food caused by high corn prices.”
That is exactly right. The riots in Egypt began over fast rising food prices. They blamed their government, when the real culprits are the watermelon environmentalists who pushed ethanol, blocked energy development, and applauded as Obama indebted the U.S. by Trillion$, which is of course causing inflation, making food more expensive because world trade is settled in dollars. Naturally the Islamists stepped in to take advantage. But they didn’t start it. Food riots were the initial cause of the riots.
There is no shortage of edible corn. No shortage. Climate “change” has not reduced farm productivity. Diverting corn to fuel has not reduced food corn availability.
Many people indeed go to bed hungry on this planet, but it is not due to farm productivity decline or diversion of food to fuel. Mainly it is due deliberate starvation policies on the part of totalitarian governments, and to transportation costs.
Compare the graph above to the spot price of gasoline from 1990-2011. There are many such graphs available. Here’s one:
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPMRU_PF4_RGC_DPG&f=D
You people are smart. Place the graphs on top of each other. Notice the remarkable correlation.
Is no-one concerned about the adulteration of their gasoline with ethanol? Ethanol produces 21.1MJ/liter, gasoline 32MJ/liter. When you buy a gallon of gasoline adulterated with 10% ethanol you’re buying (for the same price as gasoline) 96.6% of the energy you would get from pure gasoline. This is effectively a price rise of 3.5%. You are being sold short!
The more ethanol that goes into your gasoline, the fewer miles per gallon you will get.
The two largest uses of the US corn crop is now ethanol and beef (as if cows want corn…). You will also notice that beef prices are sky rocketing as well. That is not going to end until ethanol is dropped like the bad idea that it is.
Ethanol, decreases your fuel efficiency, increases ozone pollution and food prices. Only a half baked, stone stupid politician could come up with such a horrible idea. Oh wait, that is exactly what happened.
http://theinconvenientskeptic.com/2011/02/ethanol-vs-gasoline-mpg/
http://theinconvenientskeptic.com/2010/12/ethanol-ozone-and-the-epa/
Corn naturally produces an excess of starches in relation to what a properly formulated feed ration should have. This is why the US farmer produces a crop of soybeans – in order to supplement the feed component low in protein but high in starches (corn) with a component high in protein (soy). Protein is the limiting factor in feed production, and because of this the proportion of corn grown versus soybean grown adjusts so that the same amount of protein can be produced while also producing more starch to be converted to alcohol… Remember that what is left after corn is fermented into ethanol is still a feed ( call dried (or wet) distiller’s grains). This rationing operation all happens by the guidance of Adam Smith’s invisible hand – so don’t worry about it.
It’s also true that Americans eat about 200 pounds of meat per year. This translates, very roughly, to nearly 1000 pounds of corn. There is a very acceptable trade-off available with out much hardship – corn ethanol for your car or less meat in your diet. And again, let’s let the invisible hand ration these goods rather than trying to manage them from our armchairs.
As an interesting sidebar, there is a fascinating story to be told about the production of butanol (a more energetic form of ethanol) at a time of need during WWI. The need at that time was not for ethanol and butanol but for acetone for gunpowder. What is really to be hoped for is that the invisible hand cracks the puzzle of cellulosic alcohol production.
There already is a developed industry that produces cellulosic enzymes for the prewashed jeans market. I think it’s just a matter of a few innovations and price changes to bring this kind of process into the mix.
The original post here would like to make you believe that the cost of corn is high.
In historical terms it is not even close to being at peak prices. In 1974 corn prices peaked at $15.67/bu in 2008 dollars, today corn is selling for about $7.28 in todays dollars or $7.12 in 2008 dollars.
That 1974 peak price was during the oil crisis of when oil prices went through the roof and fuel ethanol from corn was an insignificant fraction of fuel use, and an industry that had almost no economic clout.
You guys are confusing cause, correlation and effect. There is a correlation between food costs and corn prices, but the change in prices for both commodities is driven by oil prices and the cost of energy.
The reason Mexicans cannot afford to buy corn for their tortillias is because the Mexican government did not protect the small family farm from corn imports and broke the back of the small producers. Now instead of growing their “white corn” (note not the same as field corn for ethanol) in small family plots or local farms they shifted to large scale imports of their cultures staple food crop.
Don’t blame U.S. Farmers for stupid Mexican government decisions.
The U. S. exported 489,000 metric tons of white corn to Mexico in 2009/10.
We exported 880,000 metric tons of white corn all together that year.
http://www.ers.usda.gov/data/feedgrains/Table.asp?t=26
There is no corn shortage!! It just costs more to get it to the user due to high fuel costs.
It is only half as expensive as it was in 1974 in real dollars.
Larry
What is realy important is to constantly let people know who is directly responsible for this global economic fiasco and the price rise in essential commodities and energy: “Green” politicians like Obama and the Democrat Party, which is owned and operated by the enviro crowd.
You think this has started since Obama came to power? I sense a person who wants to believe, no matter what the facts. This is much older than that, and Bush did not oppose it.
The real mover is the big agribusinesses. An initial driver was the requirement the US was under to remove many of its agricultural subsidies (under WHO rules). Subsidies for corn ethanol don’t come under the same umbrella, so it was a win-win for the big businesses and government.
Big business loves government subsidies, despite all the rhetoric of free market. Bush sold it as energy independence (surely you remember that?) and it allowed to take some pressure off him from the agricultural protectionist lobby. That they could get the Greens to play along, even take the blame, must have been so funny for them!
(I’m not saying Obama’s administration would have done differently. I’m sure it wouldn’t. But to blame him is wrong.)
Hotrod (Larry)- Yes, corn is a useful crop with many markets, American as apple pie. So why can’t it compete on its own? Why are those of us who prefer pure gasoline forced to buy their product? Why can’t we buy our ethanol ( or sugar) onthe world market? What’s secure about an energy source that uses more oil than it replaces? The ethanol mandate is corrupt; it has turned honest farmers into corporate welfare queens.
Phil. says:
“Or the farmers would be paid to keep it out of production to maintain the price, or they might grow some other non-food crop.”
Stick to physics, Phil. Farmers know what they’re doing. And no politician would get traction by proposing that the current very high corn prices should be kept artificially high. With ethanol, plenty of corn is already being kept out of food production.
Billy Liar says:
“The more ethanol that goes into your gasoline, the fewer miles per gallon you will get.”
And the more [harmless, beneficial… but still] CO2 you will put into the air per mile traveled.
Naturally the Islamists stepped in to take advantage. But they didn’t start it. Food riots were the initial cause of the riots.
None of the revolutions in North Africa have been driven by Islamists. They may take over later, but have not yet.
The revolutions are not driven by food rioting either. The initial cause was the success in Tunisia of politically based disgust at their rulers, initially fired by a self-immolation suicide. (Bahrein, for example, is hardly starving.)
People on this list are disgusted by the way the Greens don’t let economic realities influence their desire for corn ethanol. But just making up political facts to suit your own message is just as dangerous (I accept that the facts may have been made up for you by someone like Beck, determined that everything a Moslem does must be because he is a Moslem. Despite the fact that many of the people he thinks are Moslem aren’t (10% of Egypt, for a start).)
Ken S says:
March 5, 2011 at 4:58 pm
Right. That simple solution was used for Iraq. Remember how that simple Food for Oil Program turned out?
What? Corn prices are up because Chinese people and Indian people are eating more meat than ever and corn is the primary food source for cows and chickens. As people become more prosperous they eat more Western diets. I have no idea where you found the “research” you base this on.
Given that ethanol production from start to finish gives you 0.8 BTU out for 1.0 BTU in, it would seem that ethanol not only drives up food prices, but also demand for energy. Let us also not forget its voracious appetite for water during its production.
Moderators, I tried twice to post a short comment on the Food-for-Oil program. What happened? Is it something I said?
[Found, Restored. Robt]
Not true, fuel mileage does not directly track with fuel energy content. It tracks with engine efficiency at extracting that energy. Ethanol added fuels do not reduce fuel mileage in all cars, some makes and models of cars actually get better fuel mileage on high ethanol blends than they do on straight gasoline.
The high blending octane of fuel ethanol (118) allows blenders to extract more gallons of gasoline out of a bbl of crude oil, increasing the fuel supply and reducing the effective cost of oil by about 35 cents per gallon over what it would cost if ethanol blending did not occur (because the refiners would have to do more expensive processing to get the equivalent gallons of gasoline from the same barrels of crude oil).
Properly designed engines and engine management systems can get significantly higher thermal efficiencies out of high ethanol blend fuels. E85 for example increases the power produced by a typical engine by 5%-15% and with optimized designs can hit thermal efficiencies comparable to diesel engines near 40% thermal efficiency.
The indirect economic value to the economy is also being ignored by many of you. Every dollar spent on fuel ethanol stays in the U.S. Economy and rolls over about 6 times before it gets tied up permanently in a long term investment. The same dollar spent on imported oil leaves the country and never comes back except when that off shore supplier buys up our industry or land to get rid of their surplus dollars.
Every dollar spent on fuel ethanol that a local fuel ethanol plant gets for the fuel goes back out as wages to staff, purchases from the local community, and payment to local farmers. They each in turn spend that money in some other local business, or invest it.
As much as you folks want to paint certain companies as some evil corporation, because they make money through fuel ethanol, remember that the vast majority of that money is paid back out as wages and purchases of local supplies and support activities from painters to construction workers, welders to truck mechanics to office workers — etc.
All that money stays in our economy and gives other people jobs they would not have if the fuel ethanol industry did not exist.
Larry
And I’m backing you. Long CVX, RDS, and BEXP (Austin in Bakken).
All are great hedges against rising gasoline prices.
we’re small working interest owners in infield plays here in TX. we (I say “we” but I have nothing to do with actually drilling the hole) just completed 5 horizontal wells to the Woodbine in S TX. #4 was 12,000 ft horizontal with 39 fracs! The next two are closer to Houston county, testing 4 probable zones vertically before going horizontal in whatever zone has the best production. Drill, baby, drill.
Yes, I’m one of those money-grubbin’ ahl profiteers. So far, oil has been a GREAT investment. My 401(k)? Eh…not so much.
Also noted when I filled the tank this afternoon the sign on the pump says “enhanced with ethanol.” Since ethanol has less energy per gallon than gasoline, shouldn’t the sign read “diluted with ethanol?”
My mileage certainly shows it.
And the more [harmless, beneficial… but still] CO2 you will put into the air per mile traveled.
since you have to burn more fuel to travel the same number of miles, I’d be curious to know if ethanol is really more CO2 efficient. I’m guessing not.
Almost certainly not if you factor in energy used in production and distribution. Can’t transport ethanol by pipeline; you have to use fuel-burning trucks.
Here’s another test. Go to the breakfast cereal aisle in your grocery store. Notice that all the packaged cereals cost the same, regardless of the type of grain they are made from. That’s because the actual farm product cost is pennies and minimal compared to the costs of processing, packaging, and transporting the stuff.
I hate ethanol. It wrecks engines. It is another stupid political imposition on consumers made by posturing dingbat politicians. But ethanol production has not reduced the production of edible corn.
The real price driver of corn and other food commodities is the cost of gasoline. Gas is now $3.30 and climbing. That’s not because demand has skyrocketed; it’s because of artificial manipulations of the petroleum supply and dingbat drilling and refining policies foisted upon us by corrupt dingbat politicians.
more on energy indepencence:
http://www.energytribune.com/articles.cfm/4480/Jon-Stewart-Vivisects-Energy-Independence