Corn Commentary

Food Price Study Finds Oil Drives Food Prices

Farm Foundation Food Price StudyOne of the findings in a Farm Foundation study being released today is that oil is ultimately behind the increase in corn prices.

As Purdue agricultural economist Wally Tyner explains it, “Higher oil price means higher gasoline price, higher gasoline price means more demand for ethanol because ethanol is a substitute for gasoline, and the higher ethanol demand means more demand for corn and more demand for corn means higher corn prices.” The result has been that the price of crude oil and the price of corn are now linked, Tyner says, which is a revolution for global agriculture.

“What’s Driving Food Prices?” was written by Tyner and two other Purdue University economists. Another interesting finding in the report is that China and India have less of an impact on food prices than many believe. “While many studies focus attention on China and India, neither country is a major trader of most agricultural commodities. However, China’s rapidly growing oil imports have
had an indirect effect on food prices by impacting world prices for crude oil.”

Farm Foundation 75th logo“We commissioned this report to provide a comprehensive, objective assessment of the forces driving food prices,” said Farm Foundation president Wallace Conklin. “It is the intent of Farm Foundation that the information will help all stakeholders meet the challenge to address one of the most critical public policy issues facing the world today.”

Read the full report here.

Reality Price Check

A coalition of commodity groups in Texas has put together a clever and informative website to clean up the misinformation about higher food prices. provides a number of facts, reports, research and statements from a wide variety of reputable sources indicating that rising energy costs have affected the cost of everything from farm production to food processing to getting food to the grocery store. Yeah, okay – anybody can do that. But they do it in a pretty unique and interactive way.

Texas Price CheckThe site features an animated grocery conveyor belt, which allows visitors to click on food items to learn the farmer’s share of the retail price for bread, corn flakes, peanut butter and other food staples. Another animation depicts an innocent grocery cart that meets a tragic end in the “reality aisle.” A number of Texas icons such as Cadillac Ranch and a Texas license plate are featured, as well in a context related to food prices.

Even better, the Web site is being promoted in a variety of ways across Texas. Billboards feature a grocery cart being threatened by an oil pump jack and provide the Web address for consumers to learn more. Newspaper ads in major markets are planned, as well as a radio campaign later this fall.

The consumer education initiative is being funded by the Texas Peanut Producers Board, Texas Corn Producers Board, and the Texas Wheat Producers Board. Check it out!

EPA Delays Decision on RFS

Stephen JohnsonEnvironmental Protection Agency administrator Stephen Johnson issued a statement today saying that the agency will delay its decision on the RFS waiver until early August.

“Given the amount of work that remains to sufficiently answer the Texas request for a waiver from the Renewable Fuels Standard (RFS), it is now clear that a final decision on the request will not be completed by July 24,” Johnson said.

EPA received over 15,000 public comments on the issue and Johnson says it is important for the agency to take sufficient time to review and understand these comments in order to make an informed decision.

“The process remains fair and open and no agreements have been made with any party in regard to the substance and timing of the decision on the waiver request,” Johnson says.

Candidates Address Agriculture Issues

Presidential candidates Barack Obama and John McCain spoke to the American Farm Bureau Federation’s Council of Presidents meeting in Washington DC last week by teleconference, both pledging their continued support for American agriculture. However, they shared different ideas on how they would accomplish that.

McCain ObamaSen. McCain (R-Ariz.), first to speak, pledged to support trade agreements that will open markets to U.S. agriculture. “I believe the American agricultural worker is the most efficient and productive in the world and one of my jobs is to open every market in the world to your products,” McCain said.

Sen. Obama (D-Ill.) followed McCain and emphasized his support of the recently passed farm bill. “I would have liked to have seen some additional reforms in the bill, but on balance the bill did a lot more good than bad because it dramatically increased the funding to fight hunger, it increased funding for conservation, and it provided farmers with stability in an increasingly volatile market,” Obama said.

The candidates differed pretty radically on their views of the estate tax, with McCain saying the first $10 million of an estate should be exempt from the estate tax with anything above the $10 million level taxed at a 15- percent rate. “It’s outrageous that you can’t pass onto your children and grandchildren the hard-won fruits of your labor,” McCain said.

Obama said he would keep the estate tax exemption at the 2009 rate, $3.5 million for single filers and $7 million for married couples, but pledged to not raise it above that level. “The truth is a complete repeal of the estate tax would cost the government $1 trillion over the first 10 years at a time when our country has some huge priorities,” Obama said.

Both McCain and Obama emphasized the need for immigration reform to meet the current labor crisis facing agriculture and the importance of agriculture in meeting America’s energy needs.

OECD Report Spins Stats

Statistics can be made to prove anything – even the truth.

OECDWhile the report out of the Organization for Economic Cooperation and Development (OECD) this week found that biofuel production “has a limited impact on reducing greenhouse gases and improving energy security, and has a significant impact on world crop prices” the statistics in the report actually tell a different story.

For example, OECD credits ethanol produced from corn starch with a 30% reduction in greenhouse gas (GHG) emissions if using natural gas, a 50% reduction in GHG if the facility is powered by biomass, and 80% for sugarcane ethanol. That’s better than ZERO for fossil fuels – certainly not “limited.”

In addition, according to a review of the report by the Renewable Fuels Association:

The modeling included in the report suggests that a 28% drop in world oil prices would cause a 12% reduction in world coarse grain prices ($0.75 per bushel in the case of corn today), underscoring the fact that skyrocketing oil prices are the largest driver behind increasing grain prices. By contrast, removing biofuel mandates like the Renewable Fuels Standard (RFS) would reduce coarse grain prices by just 1% ($0.06 per bushel of corn). Even abandoning all biofuels policies would only yield an average coarse grain price reduction of 7% ($0.45 per bushel).

The OECD report itself says the “impact of current biofuel policies on world crop prices, largely through increased demand for cereals and vegetable oils, is significant but should not be overestimated.” Guess that depends on your definition of “significant.” Sounds like oil prices have a much more significant impact which is consistently being not only UNDERestimated but virtually ignored.

Facts are stubborn things, but statistics are much more pliable.

Missouri Corn Uses Facts to Defend Ethanol Standard

The Missouri Corn Growers Association is defending the statewide ethanol standard with facts instead of hype.

Missouri CornCEO Gary Marshall says that while recent political proposals claim repealing the statewide ethanol standard would lower fuel and food prices, the effect would be quite the opposite.

“Simple economics dictate that increasing supply helps reduce price,” said Gary Marshall. “Utilizing a fuel produced and refined in Missouri is part of the reason our state has some of the lowest gas prices in the nation.”

Marshall notes that the Missouri Renewable Fuel Standard was structured so that it only requires gasoline to be blended with 10 percent ethanol when ethanol is cheaper than conventional gasoline, meaning that ethanol cannot increase the cost to consumers.

He also points out that blaming ethanol for skyrocketing food and fuel costs is not supported by the facts. According to figures from the U.S. Bureau of Labor Statistics, while households are facing a 23 percent increase in their total food costs, they are facing a 335 percent increase in their gasoline costs since 2002.

“If fuel prices had increased at the same rate as food, we would only be paying $1.39 per gallon for gasoline,” Marshall says. “And while grocery bills are going up due mainly to increasing transportation, labor and marketing expenses, Missouri’s food costs remain inline with other neighboring states.”

“The hype is just that – hype,” he concludes.

Corn on the Hill

Corn growers from around the country have been in the nation’s capitol this week for the biannual Corn Congress meeting of the National Corn Growers Association.

Corn Growers Sherrod BrownIn addition to setting organization policy, the growers have been electing new members and leaders and visiting with lawmakers. NCGA President Ron Litterer presented Senator Sherrod Brown (D-OH) with the President’s Award this year for his leadership and commitment to reform in the Food, Conservation and Energy Act of 2008. “NCGA cannot thank him enough for helping to take farm policy to a new level by introducing the Average Crop Revenue Election program,” said Litterer.

Corn Growers PelosiWednesday evening, the corn growers met with Speaker of the House Nancy Pelosi at the annual Capitol CornFest reception Wednesday evening on Capitol Hill. In conversations at the reception, she thanked farmers for their strong support of the Farm Bill and the Renewable Fuels Standard (RFS) in last year’s historic energy bill. She is pictured here with NCGA chairman Ken McCauley, NCGA president Ron Litterer and Corn Board member Theresa Schmalshof.

FAPRI Analyzes Farm Bill

The highly anticipated analysis of certain provisions of the new farm bill by the Food and Agricultural Policy Research Institute at the University of Missouri–Columbia, better known as FAPRI, was released this week.

FAPRIThe report provides preliminary analysis of impacts of certain provisions of the 2008 Food, Conservation and Energy Act, including the ACRE program. The report found that, besides ACRE, most of the selected provisions of the law would have only modest impacts on commodity markets, farm program expenditures and consumer food prices.

The ACRE program could have significant effects on producer income and taxpayer costs. On a crop year basis, the program increases net farm program payments by an average of more than $1 billion per year and the potential expenditures are much larger. Given program rules and estimated payments, the ACRE program appears much more likely to appeal to producers of feed grains, wheat and soybeans than to producers of cotton, rice and peanuts. Thus, the program is more likely to be attractive to producers in northern states than in southern states.

The report also looked at the impact of extending the ethanol specific tariff and reducing the ethanol tax credit and found that “extending the $0.54 per gallon specific tariff on ethanol imports for two more years results in lower ethanol imports and slightly higher prices for ethanol and corn. In contrast, reducing the ethanol tax credit to $0.45 per gallon from the current $0.51 per gallon would tend to reduce ethanol and corn producer prices. The tariff effect is slightly larger than the tax credit effect, so average corn and ethanol prices increase slightly.”

Read the entire report here.

Groups Write President to Support Ethanol Tariff

Seven commodity and ethanol organizations have written a letter to President Bush in support of the secondary tariff on imported ethanol. The groups called attention to the importance of the tariff for the nation’s growing ethanol industry, as well as to the nation’s energy, economic, and environmental security.

The organizations writing the letter include: National Corn Growers Association, National Farmers Union, National Sorghum Producers, National Association of Wheat Growers, American Coalition for Ethanol (ACE), Ethanol Producers and Consumers (EPAC), and the Renewable Fuels Association (RFA).

“The 54 cent per gallon secondary tariff was enacted by Congress in 1980 to offset any incentive for imported ethanol to benefit from the 54 cent per gallon tax credit for ethanol blended into motor fuel,” the letter said. “This tax credit is taken by refiners who blend ethanol into motor fuel, not ethanol producers. The purpose of the secondary tariff is to protect American taxpayers from subsidizing imports, not to protect domestic ethanol producers.”

The letter points to factors such as oil prices, rising demand, drought, and declining value of the dollar as having more effect on the price of food than biofuels. They urged the President to avoid yielding to the misdirected efforts to blame ethanol for rising prices and to prevent American taxpayers from subsidizing foreign products.

Mandating Flex-Fuel Vehicles is a Good Plan

The idea of a mandate that all vehicles sold in the United States is gaining some traction, mainly due to the efforts of author and aerospace scientist Robert Zubrin and his book “Energy Victory.”

FEW 08 Robert ZubrinZubrin contends that by mandating that all new vehicles sold in the U.S. be flex fuel we would effectively break the economic stranglehold the oil cartel has on the country and the world.

During last month’s Fuel Ethanol Workshop in Nashville, Zubrin made his point by using the analogy of a card game where there is a trump suit that defeats all others and the strategy is for your side to hold most the cards in that trump suit. “It’s the same way in energy,” Zubrin said. “There’s four suits, there’s oil, coal, natural gas and biomass. And right now oil is the trump suit.”

That’s because right now there is mainly one way to power vehicles and that is petroleum products. The key is to change that trump suit, he says, and biomass is the best alternative. The question is how to change the trump suit and Zubrin contends that the answer is to mandate the sale of flex fuel vehicles, which would cost at most $100 per vehicle. “If we had a standard that all new cars sold in this country had to be flex fuel, within three years we’d have 50 million cars on the road in the United States capable of running on alternate fuels,” and Zubrin says that would ultimately result in flex fuel vehicles being sold all over the world.

Others are picking up on Zubrin’s idea on their own, like columnist Clifford May of the National Review Online, and even talk show host Bill O’Reilly. Hopefully, the idea will eventually get to Washington.

Listen to Zubrin’s entire address to the 2008 FEW here and get fired up:

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