News from the Kankakee County Farm Bureau

by  Chad Miller, Kankakee County Farm Bureau Manager (pictured below, left)

Is Ethanol to Blame for High Food Prices?

As the chairman of the Kankakee Regional Chamber of Commerce Legislative Committee, I have the opportunity to discuss important agriculture issues as a part of the other important legislative issues affecting Kankakee County business.  In order for those not familiar with agriculture to gain a better understanding, these topics are discussed in depth and good questions are often raised.  A question recently posed was in regards to our food prices: Is ethanol to blame for our rising food costs?  Blaming ethanol use for food inflation is wrong for the following three reasons. 

Much of this year’s food inflation did not come from ethanol because most grocery prices are unaffected by corn prices, but they are affected by transportation, electricity, labor, marketing, and other costs. 

The price of meat in the grocery store is not determined simply by adding feed costs to an animal.  Farmers are price takers, not price makers.  Higher feed costs may simply stop at the farm gate.   

In food products that contain corn – including corn fed to livestock – the price of corn is a small fraction of the overall consumer price.  Using May’s corn price of $3.76 per bushel, the farm value of corn in a 24 oz. box of corn flakes is ten cents. 

Corn prices at the farm level have been very low since 1998.  We are now returning to non-subsidized profits in corn production.  This has happened before.  In fact, in inflation-adjusted dollars, we have seen corn prices as high or higher than current prices several times since the 1970’s.   

The value of corn (assuming a 65% corn feed ration) in a pound of pork was seven cents last August when corn prices were $1.80 per bushel.  The value of corn in a pound of pork using May’s price of $3.76 per bushel is 14 cents.    Last month, the average price of center cut, bone-in pork chop was $3.23 per pound in the U.S.  At today’s corn prices, the farm value of the corn in that pork chop accounts for 4.3 per cent of the cost.   The increase in the value of corn in that pork chop due to a doubling in corn prices accounts for only 2.2% of its retail price.  Purdue University economists say increases in hog prices have allowed pork producers to keep up with higher feed costs and remain marginally profitable.  

As farmers wrapped up their spring planting, it’s clear that market forces are at work.  Higher corn prices have prompted farmers to plant more acres of corn this year than any year since World War II.  Continued higher market prices for corn and soybeans will significantly reduce the amount of farm program payments farmers will receive in 2007 saving taxpayers roughly $2 billion to $3 billion dollars.  

Public investment in renewable fuels production should remain a national priority because economic benefits go well beyond the prices farmers receive.  Investment and job creation in rural America will always pay greater dividends than continued purchases from economies of the world’s most unfriendly and unstable oil regimes.  

If you have any questions or would like to discuss this topic further, please call the Kankakee County Farm Bureau_® office at (815) 932-7471.

Submitted By,
Chad Miller, Manager
Kankakee County Farm Bureau®