Even though grain and energy prices have dropped significantly in recent weeks, higher food prices may have more sticking power than gum on the bottom of a shoe.
The reason being given by the economic experts is “sticky prices,” according to this AP story. “That’s what analysts call it when companies slap higher prices on products and keep them there even though the rationale for the price hikes — such as soaring oil prices — is gone,” the story says.
Some folks would really like to get to the bottom of this whole food price mystery. Last week on World Food Day, FoodPriceTruth.org launched “Operation Missing Cookie” after discovering that Kraft and other companies were reducing the weight content in packages of food items such as Chips Ahoy cookies and selling them at the same price.
“Kraft pointed the finger at higher operating costs, but their profits are up 24% this year compared to last year,” the organization noted, calling such statements from food companies misleading and disingenuous. “These companies pretend that they are suffering at the hands of higher energy and grain prices like average Americans, but it’s really about squeezing more money out of the consumer.”
FoodPriceTruth.org compiled a chart of familiar food items showing up to 25 percent weight reductions in common food items like cheese, mayonnaise and ice cream.
Sticky prices simply mean that food companies are sticking it to consumers – and that’s even more disgusting than finding gum on the bottom of your shoes.
Several speakers at the World Food Prize symposium this week in Des Moines were from the major agricultural chemical companies, including Monsanto, Syngenta and Pioneer.
Pioneer Hi-Bred International president Paul Schickler was on a panel that focused on the “Promises and Challenges of Next-Generation Science and Technology.” He took the first question to the panel, which was “How optimistic are you that the world can reduce hunger by half by 2015?”
Schickler stated that he was very confident that goal could be reached, simply on the basis of increased food production, using hybrid corn as an example. “If you look back throughout the development of hybrid corn, productivity has improved at about one and a half percent per year,” he said. “As we look to the future, we think we can double that, and that has already started to show up in the last 8-10 years through the use of biotechnology, plant genetics and improved agronomic practices.” That would mean corn yields in the United States could hit 210 bushels an acre in ten years, and what that means is increased sustainability because more food can be produced on less acreage.
Ron is the roasting man at Sunbelt Ag Expo. I caught him roasting some ears of corn early in the morning before his booth was busy, although he says that there are people who like a corny breakfast.
He cooks with propane and says he does about 75 ears at a time. He like the combination of yellow and white sweet corn because it looks good and is very tasty. He says a key to a good ear of roasted corn is to cook it hot and for about a half an hour.
As you’ll hear Ron say in this video, “we dip it in some butter and you’ll grin from ear to ear.”
Distillers grains are often called the “best kept secret” about the ethanol industry – the one-third of corn that comes back as livestock feed as a result of ethanol production.
DDGs have also become a major value-added export for the United States. Exports of DDGs expected to hit 3 million metric tons valued at an estimated $600 million this marketing year and next year they are projected to reach at least 4 million metric tons at $800 million.
The U.S. Grains Council and USDA’s Foreign Agriculture Service are helping to get the good word about DDGs out by co-sponsoring the International Distillers Grains Conference with approximately 140 major foreign buyers, nutritionists, and feed ingredient importers expected to attend. The meeting will be held October 19-21 at the Indianapolis Marriott Downtown.
Agriculture Secretary Ed Schafer expressed some frustration about implementing the ACRE program included in the 2008 Farm Bill and disappointment with how Congress is handling the issue during a question and answer session at the Association of Equipment Manufacturers AgExecutive forum this week in St. Louis.
“But we will make this decision here if not the end of this week, the beginning of next week, and get the numbers out so producers know what’s going on when it comes to planting decisions,” Schafer said. “I’m leaning to a program using the ’07-08 numbers that Congress committed to, but we have another issue getting it through the Office of Management and Budget.”
Speaking to members of the press later, Schafer said this has been a very thorny issue with a lot of pressure financially on both sides to put the program in place and trying to find the proper place for the potential expenditure for taxpayers has been difficult. “This program was scored in a certain manner that was supposed to save taxpayers money,” Schafer said. “I think Congress, in their infinite wisdom, looked at commodity crop prices continuing to go up. If we use an ’07-08 baseline number based on current conditions today, the guaranteed price for corn would be $4.88. With corn closing in the low $4 range this week, that would mean the cost of this program would go up dramatically.”
Schafer says the major question is when the baseline date will be. “While the CBO scored this bill for ’07-08, they used a baseline from last April,” Schafer said. He believes that was the intent of Congress, but he says the intent was also “to save us $250 million, not to spend an extra billion.”
Listen to Schafer’s comments on ACRE from both his Q&A and the press availability here:
The executives heard from commodity organization representatives for corn, soybeans and wheat on where we are headed on the commodity road today – as if anyone can really answer that question with any kind of certainty at the moment!
But, Fred Stemme with the National Corn Growers Association gave it a go for the corn side of the equation, making the point that one thing we can say with some certainty is that yields are increasing and should continue to do so. “If you look at the charts for 15, or 20 or 30 year yield trends, they don’t really tell the story about biotechnology, marker assisted breeding and the fact that we have now mapped and sequenced the corn genome,” Fred says. “If you look at a ten year yield trend, we’re looking at about 180 bushels per acre nation average for corn by 2015.”
“As we look forward, our economists are telling us that we could be looking at a crop of 17 billion bushels,” he says. “We use about three billion gallons to produce ethanol and at the same time still have 14 billion bushels for all the other uses – food, feed, livestock, exports – and that’s four billion bushels more than we actually used in 2002.” While there are short term concerns with the financial situation, Fred told the ag execs that the corn industry is very optimistic about the long term future for agriculture.
There was quite a bit of focus at the forum on ethanol and Fred thought it was great to see these executives from mainly farm equipment companies recognizing how important the biofuels industry is to the future of agriculture.
The October USDA crop production report gives a slight boost to the corn and soybean forecasts.
Corn production is forecast at 12.2 billion bushels, up 1 percent from last month but 7 percent below 2007. Based on conditions as of October 1, yields are expected to average 154.0 bushels per acre, up 1.7 bushels from September and 2.9 bushels above last year. If realized, this will be the second highest yield on record, behind 2004, and production will be the second largest, behind last year.
According to USDA, yield prospects improved in the central Corn Belt, central Great Plains, and upper Mississippi Valley as September rains brought much needed moisture to the region.
Soybean production is forecast at 2.98 billion bushels, up 2 percent from the September forecast and up 11 percent from last year.
On Tuesday, the United Nations Food and Agriculture Organization called for a review of “current policies supporting, subsidizing and mandating biofuel production and use” because demand for biofuels, such as ethanol or biodiesel, was leading to “continued upward pressure” on the price of agricultural commodities.
However, commodity prices are falling – and rapidly. Right along with the stock market, corn futures dropped Monday more than 6% to the lowest level in more than 10 months, and the decline continued on Tuesday with corn for December delivery closing at $4.17.
As the old saying goes – the best cure for high prices is high prices – meaning that, basically, what goes up must come down. Corn is getting back down to year ago levels now after hitting around $8 a bushel earlier this year.
The FAO report says “The emergence of biofuels as a new and significant source of demand for some agricultural commodities … contributes to higher prices for agricultural commodities in general, and for the resources used to produce them.”
Oddly enough, the report says nothing about the impact of higher biofuel production on oil prices – which are also much lower now then they were earlier this year.