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
220mph says:
March 5, 2011 at 7:08 pm
That is remarkable. It is far better than what one would expect from a perpetual motion process. No wonder so many people fall for it, although I think it is generally true that no one falls for perpetual motion anymore.
It seems to me that important assertions like that deserve citations of the research supporting them.
G. Karst,
“Now, put yourself, in the shoes of the poor, starving Chinese, who must endure hunger as they witness us drive around blowing corn fumes out our asses.
How long before they move on us? GK.”
The Chinese would then use some of the $2 trillion of US debt they are holding and purchase as much grain as they need. As they release these dollars onto the market, the dollar will decline rapidly in value and inflation will be imported into the US. As a consequence, interest rates will rise as investors attach a risk premium to hold US debt. I think it will be the US citizens who will be the most upset.
I think a lot of basics are being glossed over in this discussion. I don’t necessarily think that because the USA squanders 40% of our corn crop on making alcohol that anyone in the world is starving. The effect is to drive corn prices up because of demand. The price of the grain in a box of cereal was a foolish example. But if you grow cattle, hogs or chickens the market price of feed grain plays a very significant role in what you must charge for your product in order to make a profit. We all pay disproportionately more for food than we did 10 years ago. A good measure of this disproportionate increase can be attributed to ethanol mandates. We’re not starving anyone, but ethanol artificially inflates the market value of grains (corn and substitute grains) and drives most prices upwards. The net effect is that the consumer pays more for food because government mandates ethanol use in motor fuel. It is an artificial market distortion.
Why would we even WANT to burn ethanol in our cars? Well…the rationale I keep hearing is to reduce our dependence on foreign oil. The USA only produces 35% of the oil we consume. We import the rest. Has ethanol production or mandated use significantly affected a change in the amount of oil we import? No. Oh, some have argued that each gallon of ethanol produced is one less gallon of oil we had to import but this cannot be demonstrated by the numbers. If it has made even a small impact on our imports it came at a dear cost. We have to factor in not just the market price of the ethanol that’s blended in our motor fuel but the taxpayer subsidies we paid to have it produced and subsequently blended plus the additional amount we have to pay for food. If one could factor in each component of the expense one would realize it’s cheaper to buy foreign oil.
Do we lust for ethanol because it’s SO much friendlier than that evil MTBE? Well…not really. The toxicity of MTBE has been greatly exaggerated and it got into ground water via leaking tanks (which would have leaked anything that was in them). MTBE stinks. People notice it. Ethanol is not necessarily a superior anti-knock agent/oxygenator. Ethanol added to gasoline does NOT produce a product that produces less pollution. It has been argued that it is MORE polluting, but I’m willing to leave it as a wash. We do know that ethanol in gasoline results in diminished fuel mileage. This effect is NOT “negligible”. I have personally noticed about a 10% attenuation in my gas mileage in two different vehicles. A diminution in mpg of 5-15% is very commonly reported. This is not negligible.
So…if we don’t dilute our gasoline with ethanol to effectively diminish our imports of foreign oil or because it’s the best fuel oxygenator or because it burns cleaner or because it will prevent global warming or because it increases fuel efficiency…WHY do we do it? Your best answers will be found from corn growers, ethanol producers, ethanol blenders and the politicians they own. Taxpayers? Not so much…
There are a LOT of agricultural subsidies. If they went away tomorrow people would still have to eat, the market would correct following the removal of the artificial distortion. The same is true for all the unnecessary energy subsidies. But if subsidies and government mandates for “renewable” energy, and ethanol in particular, were to “go away” these industries would wither and die very quickly. The reason is that there is no good reason for ethanol.
Let’s test the theory. End the mandate and the subsidies and let’s see what happens.
“I think it’s because the real factors in almost all commodity prices are market driven and energy costs drive much of that.”
Government mandates, subsidies and tariffs are not market forces. So I am well aware the price of ethanol has nothing to do with real factors.
“Also, it’s a bit dishonest to figure in ethanol subsidies while ignoring oil subsidies. It makes your comments less credible.”
Oh, please add them in. Make sure to divide by total domestic oil production!
“G. Karst says:
March 6, 2011 at 8:13 am
I think it might be useful to imagine a real life scenario.
Sometime in the near future China and India has a major crop failure, and these countries begin to starve. Here in N. America we stop exporting grains, to reserve, our supplies, to ensure, we do not run out.
As China starves, we continue driving around, blowing corn fumes out our tailpipes. How are we going to feel, at this time?”
No this is the scenario to think through.
If there is corn grown for ethanol, this will certainly be diverted into the food chain in this case and be highly beneficial. The chinese would pay any price and politicians in the US would order this food aid.
All or most of this reserve would not exist without ethanol conversion. Actually even part of the food corn would not have been planted worldwide, if prices were as low as they used to be.
Ethanol production is highly beneficial for world food security.
hotrod ( Larry L ), “The picture is a little more complicated that you want to present the Poptech. The volstad act (Prohibition) did not explicitly prohibit fuel ethanol, and denatured ethanol was still “legal”, it just became unavailable in the open market. By outlawing beverage alcohol they destroyed the industry that would create an adequate supply of fuel ethanol.
As prohibition was seen to be a soon to be imposed fact, the capital investment and plants of the large scale ethanol producers became nearly worthless, and were sold at fire sale prices many to the Rockefellers (oil industry), and all their skilled brewers and the chemists that supported them were diverted into either the oil industry or went underground into the boot leg industry.”
What you are saying is illogical. If ethanol fuel/additive was economically viable they would have switched to making that. Gasoline put ethanol out of business because it was cheaper. It has nothing to do with Prohibition.
“At that time the wide spread network of service stations to provide fuel for transportation did not exist,”
They didn’t exist for the oil industry either when it was started.
“That concentrated the source of transportation fuel directly in the hands of a defacto monopoly in the oil companies and their suppliers. Even after prohibition was ended, that oil monopoly continued to squash small businesses that sold fuel ethanol.
One of their tactics was to black ball fuel distributors that sold ethanol for “bad business ethics”, and refused to sell them kerosene or other petroleum products. In short the oil industry at that time ran a protection racket out in the open, and destroyed any business that sold fuel ethanol, by cutting them out of the supply chain for the other products they needed to run a successful business.”
That is all conspiratorial nonsense and would not prevent a cheaper fuel from coming to market. Whatever kerosene or petroleum products they refused to sell, you could buy through a third party. Only the government can stop trade not any one company.
“It was another example of unintended consequences, like the oil crisis in the 1970′s destroyed the majority of the independent gas station owners and left only the corporate chain stations. Many of the independents who went out of business in the 1970′s were selling gasohol and got cut off from fuel deliveries from the major oil chains. They always got their fuel deliveries late, or simply got driven out of business by corporate chain stations down the street selling gasoline at prices below their wholesale prices.”
The oil crisis in the 70s was caused by government price controls on oil enacted under Nixon. Why would a company willfully help their competitor put them out of business? It is illogical and bad business. The fact remained ethanol was still not cheaper than gasoline, it was not used then and now for the same reason. All you have are silly conspiracy theories that have no basis in economics.
Larry, 220mph, Richard M,
1. Why do you support government welfare for corn farmers?
2. Why are you against consumers freely choosing to buy gasoline without ethanol?
3. Why are you against consumers freely choosing to buy ethanol from Brazil?
Richard M, “Well, I see the usual discussion of ethanol has taken place. It really is sad to see the normally skeptical WUWT readers being sucked in by the bad press on ethanol. You guys are smart enough to read past the lies on AGW, if you took a few minutes to apply the same critical thinking to the ethanol question you would be much better off.”
Yeah we are skeptical of a “fuel” that requires government mandates, subsidies and protection tariffs to even exist. We are reading past the lies promoting ethanol very well thank you,
Myth: Ethanol is Great (Video) (5min) (ABC News)
This talk about how ethanol somehow is bad for engines is baloney. My small engines, 2 lawnmowers, 4 wheeler, 100cc dirt bike, snowblower are all several years old, a couple over 10 and the only difference I have seen is that since I started using the E10 I can get them started much much easier.
When it comes to big motors, the only problem I have had is that the rest of the car falls apart before the engine gives me trouble. One car had 350,000 miles on it before my nephews girl friend wrecked the car. The engine was still running after the accident. Right now I have 1 car with 201,000 miles on it, one with 108,000 and my pickup that has 54,000 miles, using either E10 or E85. No problems here. Oh and my pontoon boats engine has been using E10 for the last 3 years as well with around 300 hours on it now, with no problems, and Yamaha supports it use in their outboard motors. Never mind the old gas tractors built in the 1950’s that have been running just fine for the last 30 years on E10 as well.
If your having trouble with your small engines, it’s not the fuel you fools.
Cropdoc
Oh, please add them in. Make sure to divide by total domestic oil production!
Ok, what is the price of the wars in the middle east? Do you believe we would be spending billions every day if it wasn’t for oil? Personally, I’m not one that claims gas would be over $10/gal if these costs were factored in, but I also don’t think the cost is zero as you claimed.
The fact is the cost of food has been more impacted by transporation costs and monetary policies than corn for ethanol and it was predicted to happen by honest economists while ignored by the current administration.
BTW, I am a big, big supporter of “drill baby, drill”. However, ignoring the facts just like alarmists do, does not help.
1. Why do you support government welfare for corn farmers?
The govt subsidies go to the ethanol companies, not the farmers.
2. Why are you against consumers freely choosing to buy gasoline without ethanol?
I’m not against it. Why are you FOR increased dependence on foreign dictators for our energy supply?
See how easy it is to frame a question that ignores many other aspects of the debate?
3. Why are you against consumers freely choosing to buy ethanol from Brazil?
Why are you FOR the destructive loss of jobs in the US? Increased imports, decreased exports, etc.?
Once again it’s easy to frame a question that ignores what is really a more complex situation.
Curiousgeorge has left the building…
Using food to feed machines is evil. People in rich countries like us spend a very small proportion of our income on food. If the cost doubled tomorrow for whatever reason, only the poorest among us would feel the pinch and then there are plenty of soup kitchens and government assistance programs to make sure no one starves, (thanks to the surplus brought to us by free market capitalism). But in the third world, the cost of food can easily approach 100% of a family’s income so doubling the cost means starvation. When we’re done sucking up all we can of our own resources for ethanol we’ll start in on theirs buying the food right of the starving mouths of third world children in order to burn it in our automobiles.
Call me conspiratorial but how do we know that starving the third world wasn’t an early consideration for mandating ethanol given that people like Obama’s Energy Czar, John Holdren, have been so concerned with controlling population since the 70’s? In Holdren’s “Ecoscience”, he and the Erlichs considered things like this as a ‘solution’:
And that was aimed at US in these here United States so one can only imagine the veys people like him might want to solve 3rd world overpopulation.
1. — I don’t, the blenders tax credit goes to the oil companies not the farmers, as they are the ones that actually “blend” the ethanol with the gasoline.
I do think the farmers should be able to sell their corn at a fair price over the cost of production rather than being paid price supports by the govt, or subsidize chicken growers like Tyson with artificially cheap feed.
2. — I do not, I want blender pumps installed everywhere so people can dial the fuel blend they want to use, anywhere from straight gasoline to E85, like is done in some states now.
3. — Because it would be stupid to trade Arab oil for Brazilian alcohol. You would be trading one sole source supplier for another sole source of a critical strategic resource.
I want the the U.S. to have the standing capacity to produce enough fuel from their own sources, to keep the economy from cratering the next time foreign oil is cut off. The Arab oil embargo only reduced our transportation fuel supplies by about 10% and it nearly wrecked the economy and cost a whole lot of people their jobs, their life savings and their businesses and futures.
I also want to keep the money spent on fuel in our economy instead of pumping up someone else’s economy.
Larry
@richard M says:
You might want to reread the OP –
Is corn somehow a lot more ‘transportation intensive’ then wheat or rice?
220mph says:
March 5, 2011 at 7:30 pm
Don Shaw says:
Ethanol from cellulosic feed has failed miserably to provide the promised supply of ethanol as mandated from the EPA.
Sorry 220, The reason Range fuels and other plants are not working is that the technology does not work on a commercial scale. Range fuels has not produced ethanol, they switched to methanol which has no real value. Their failure has nothing to do with the economy except that nobody wanted to throw more money after bad including the government.
Also you are wrong, The EPA depended on these plants to produce commercial quanities of Ethanol starting in 2009 and and these plants have failed to meet the mandated expectations. Unfortunately except for the Wall Street Journal and a few other sources, the problem was not reported.
One would not expect MSNBC to honestly report these problems with ethanol supply would you?
Read more here
http://www.consumerenergyreport.com/2011/02/17/the-medias-role-in-the-range-fuels-fiasco/
The discussion is focusing too much on past results of ethanol (pimentel/patzek), the now (Wang, DOE, EPA, subsidies, mandates, etc.) and not enough focus on the potential that bio-energy has.
The ethanol-naysayers (I’m sorry guys) are woefully mis informed on how our agriculture system works and uses simplistic (and wrong) assumptions in regards to cause and effect on food prices and an increase in transportation fuels from renewables . The pro guys have made valid points but need to admit that the market must ultimately pass judgement on renewables without trade/market distorting policies.
I am a corn, soybean, wheat farmer. I do not grow “food”. I grow raw materials that have many diverse uses in the manufacturing, feed, energy and food industries. I am also a stockholder in many of the companies that utilize my products. I have a vested interest in making sure that there are multiple endusers competing for my products.
The “anti” folks here are missing a key point that I would like them to consider. Oil efficiency is at or near its limit and in some areas (production for one) is declining One barrel of oil can only make a finite amount of products. Increase efficiency of oil products can only come from changes in utilization, ie. lighter cars, hybrids etc. So any increase in demand or disruption in supply has an explosive effect on price—as we are seeing today.
For ethanol the opposite is true. When I started my farming career in the late ’70s, ethanol production from a bushel of corn ratio was about 1.8 to 2.0 depending on the process and we were producing about 115 bu of corn/acre (national ave). Today that same ratio is 2.8-3.0 and producing 170 bu/acre national average. By 2030, it is likely that corn production on a per acre basis will be over 300 bu/acre. And we do not know what that “production limit” for corn is—or if there is one.
So, looking to the future, it is obvious that as petroleum costs continue to rise and agricultural efficiency continues to rise the need for any subsidation of renewable products will be a moot point. When do we get to that point? If present short-term trends continue, it will be sooner rather than later. But all this blather about energy content per gallon of ethanol vs gas is irrelevant if the real cost per mile for ethanol goes down while the cost per mile for petroleum goes up.
Anthony,
High food prices are NOT caused by corn ethanol production. They are caused by high oil prices period! As oil prices go up there is a direct correlation to increased commodity prices, which is also a function of the Feds printing money policy which lowers the value of the dollar. The US is in the process of exporting record amounts of corn overseas this marketing year. The other little fact you are missing is that nearly a third of the 40% of corn used for ethanol is returned as feed (18 pounds of DDGs’/56 pounds of corn). In the 2011 crop year there will be approximately 92 million acres of corn raised and with normal trend level yields the supply of corn carryout will increase once again. But if oil and gasoline prices remain high as they are today, the profitability of processing corn to ethanol will continue to encourage more production as it did back in 2006/7 when the last major expansion took place. Only now while there is a mandate for around 13 billion gallons the upper limit is 15 billion gallons of corn based biofuels, so the growth will be limited to maxing out the current ethanol plants, not the construction of new ones. So, as corn yields continue to climb the corn producer will be faced with the age old problem of too much corn available for the marketplace and will change his planting intentions to the most profitable crop dictated by the markets.
Cropdoc
Randy says:
March 6, 2011 at 6:35 am
“Ethanol production continues to increase in efficiency. The latest numbers from USDA’s 2008 Energy Balance for the Corn-Ethanol Industry report show for every British Thermal Unit (BTU) of energy used to make ethanol, 2.3 BTUs were produced. This is a marked improvement from the last report in 2004 when it took 1.76 units of energy to make 2.3 BTUs of energy. The report goes on to say efficiency will continue to improve as the ethanol process evolves requiring less corn per gallon of ethanol plus increasing corn yields will mean more ethanol per acre”
I have carefully read the USDA study and unfortunately one finds that they distribute the energy input to the process amongst all the output (by mass) including waste, byproducts, as well as the intended product, ethanol.
Since there is a lot of byproduct (by mass) in the processing of ethanol, their distribution of the energy consumed is unrealistic since a lot of the energy consumed is assigned to waste.
A realistic approach would be to assign all the energy input into the farming, fertilizer, manufacture and distribution, etc to ethanol only.
The USDA rational is that someday someone will find a way to make fuel with the byproducts such as cellulosic ethanol production which has not worked commercially to date.
No real business would survive if they assigned a portion of the energy costs to their waste in pricing a product.
Richard M, “The govt subsidies go to the ethanol companies, not the farmers.”
That is not what I said, U.S. Corn Subsidies
“I’m not against it. Why are you FOR increased dependence on foreign dictators for our energy supply?”
I am for buying my energy from whomever sells it to me cheaper. Also I already posted debunking this myth,
5 Myths About Breaking Our Foreign Oil Habit (The Washington Post)
“Why are you FOR the destructive loss of jobs in the US? Increased imports, decreased exports, etc.?”
I am always for the destruction of inefficient jobs that someone else can do more efficiently. There is no set fixed amount of jobs that just get “lost”. I want to increase jobs in this country and that means cheap energy.
So I see you are anti-consumer choice.
” What I don’t understand is how you can, with any intelligence at all, justify putting food in your tank, when you can’t eat oil.”
I’m not anymore. I switched from Arco (10% ethanol) to Chevron – no ethanol but at least 18 cents more a gallon. Which translates to about $3.58, and climbing every time I get gas!
Hopefully the MPG will go back up to the miserable levels I was getting when I first bought this piece of plastic Korean trash.
jimlion offers a very interesting comment and makes several astute observations from the perspective of a raw material producer. Me…I’m just a hapless consumer. I’m curious Sir, do you receive any government agriculture subsidies? The libertarian in me longs for the end to all subsidies. A whole lot of agriculture and virtually ALL of energy is polluted with federal subsidies. A coal fired power plant receives $0.40 per MWH of electricity produced. A wind farm receives about $23.50 per MWH. Why do we subsidize either of them? Subsidies of any product distort the free market. Subsidies are a form of central planning, a means for government and politicians to pick winners and losers.
As near as I can tell this nonsense started with FDR in the 1930s. The government ordered the slaughter of thousands of animals to drive the market price up. The perverse thing is that this was done at a time when a significant proportion of the population was starving. Eventually farmers were compensated for NOT growing crops and to this day are rewarded for limiting how much they grow. This central control prevents the free market from functioning as it should. The free market is the most efficient means for allocating finite resources…and food and energy are finite resources.
I am not necessarily opposed to ethanol as a motor fuel. I am opposed to the subsidies, mandates and tariffs. The mandates are particularly worrisome. What happens to our fuel supply in the event of a couple exceptionally bad growing seasons? Federal law dictates that we add ethanol as an adulterant to our gasoline. We would necessarily have to redirect feed stock into ethanol production at the same time the tariffs would effectively prevent importation of more cheaply produced foreign ethanol. This is idiocy!
It is entirely possible that ethanol might become a cost-effective motor fuel additive all on its own. But it is NOT now. Right now it is little more than a government “make work” program that benefits farmers, ethanol producers, blenders and politicians. Maybe you can fuel a jetliner with ethanol, but I doubt it. I suspect those silly cavils about energy density, freeze points and chemical properties would get in the way.
Remove the incentive for politicians to buy votes, get government central planners out of the equation and let the free market function. The true winners will come out on top. If ethanol truly has advantages then it will survive as a competitor in the liquid fuels energy market. If not it die a natural and well deserved death.
You guys are getting to be like the warmists. Nope, the price spikes couldn’t possibly be related to toxic assets flowing into commodities or partially due to crop failures around the world; nope, it’s ethanol.
hotrod ( Larry L ) “1. — I don’t, the blenders tax credit goes to the oil companies not the farmers, as they are the ones that actually “blend” the ethanol with the gasoline.”
No, corn subsidies.
“I do think the farmers should be able to sell their corn at a fair price over the cost of production rather than being paid price supports by the govt, or subsidize chicken growers like Tyson with artificially cheap feed.”
How is a fair price determined? Please provide the objective method that does this.
“2. — I do not, I want blender pumps installed everywhere so people can dial the fuel blend they want to use, anywhere from straight gasoline to E85, like is done in some states now.”
Then the ethanol industry can pay for it.
“3. — Because it would be stupid to trade Arab oil for Brazilian alcohol. You would be trading one sole source supplier for another sole source of a critical strategic resource.”
Allowing consumers to choose is stupid? Is Brazil a friendly or enemy country?
“I want the the U.S. to have the standing capacity to produce enough fuel from their own sources, to keep the economy from cratering the next time foreign oil is cut off. The Arab oil embargo only reduced our transportation fuel supplies by about 10% and it nearly wrecked the economy and cost a whole lot of people their jobs, their life savings and their businesses and futures.”
We do not have the capacity to be energy independent. While we can greatly increase our production if silly environmental restrictions are removed, it cannot replace foreign oil. U.S. government price controls caused the most damage not the embargo. So unless that happens again we will not have any sort of problem like we did. All the embargo could do is increase prices which encourages exploration. That is what led to Prudoe Bay and the North Sea.
“I also want to keep the money spent on fuel in our economy instead of pumping up someone else’s economy.”
So you believe international trade should be abolished? The Arab states have economically viable oil reserves, thus it is worth while to spend our money for their resource so we can have cheap energy which grows our economy. Not using their resources only hurts our economy because the alternative is higher energy prices. There is no economic magic you can use to avoid dealing with the reality of prices.
Poptech ignores my comment about complexity and says:
So I see you are anti-consumer choice.
To this the obvious simplistic answer. Many consumers love redistribution of wealth, especially of the liberal persuasion. So, since you are pro-consumer choice then you are clearly FOR it as well. See how easy it is to turn silly simplistic responses against you.
Richard M, “Ok, what is the price of the wars in the middle east? Do you believe we would be spending billions every day if it wasn’t for oil? Personally, I’m not one that claims gas would be over $10/gal if these costs were factored in, but I also don’t think the cost is zero as you claimed.”
Not at all, I believe those countries should provide their own security. I think we should get completely out of the Middle East. Regardless, since we are there I believe Iraq should be paying us back the full cost of the war in oil.
“The fact is the cost of food has been more impacted by transporation costs and monetary policies than corn for ethanol and it was predicted to happen by honest economists while ignored by the current administration.”
Sure, millions of acres used to grow corn to be burned has no affect on food prices if that same land was used to grow food to eat.