Lately, there have been news articles and blogs talking about the rise of food costs. This got me thinking about the Price of corn, ethanol, and how it relates to the economy. I'm not an economist or even a financial wizard type guy. I do all of our shopping so I see with my own eyes the price increases and some of the sneaky marketing ploys that food Manufactures use. I did some research and here's what I've got. I'll post this in 2 or 3 parts so stay tuned.
One answer to the rising food costs is the production of corn and how it is used in the United States. In general two types of corn is grown and raised in this country: Dent corn, also called Field corn, and Sweet corn. Sweet corn is the corn you buy in the grocery store. This type of corn is used for canning, frozen foods, and fresh for eating. It is rarely used for making four and for Processed foods. Dent corn is used for cattle feed, industrial products (like HFCS high fructose corn syrup), and for flour products. A similar type known as Flint (or indian corn) is also used for the same things.
The issue is that with the increased use of Ethanol, farmers are growing more corn for that use. Ethanol is basically grain alcohol. Interestingly Henry Ford designed the Model-T Ford to run on Ethanol. Brazil uses 25% Ethanol in its gasoline. In this country, gasoline is “cut” with 10% Ethanol. American engines can generally only tolerate 10% in the fuel. Newer Flex-Fuel engines use 85% in the new E-85 fuel. The 1990 Clean air act brought about the use of Ethanol in our gasoline. Ideally, sugar cane works best for the production on this fuel. It is what Brazil uses because it is easier to extract and has 30% more sugar in the extract. This country uses Corn. According to the CBO (the Congressional Budget office) one quarter of all corn produced is used for making Ethanol. For the first time in many years farmers are being paid a “living” wage for something that they grow. It has become a Cash-Crop. Helped by both state and Federal subsidies farmers are making a Killing on it. Here in Missouri alone there are 7 Ethanol plants, nationally there are 108. Under a 2007 law 12 billion gallons of fuel need to be produced for 2010 and 12.6 billion for 2011. Later this year the Fed is due to rule on increasing the amount of Ethanol in gasoline from 10% to 15%. News reports have reported recently that there will be a Bumper crop of corn this year (weather permitting). As expected corn prices are down but not out.
In 2007 the use of Ethanol in the US caused a 10-15% rise in food costs, according to the CBO. Statistics from the World Bank say that Globally food prices increased 140% primarily due to the bio-fuel industry in the United States. Weather, shipping fuel prices, and the decline of the dollar were also contributers to this number. Because of the demand for cropland, to grow corn, and the reduced amount going to feed production Cattle prices were affected.
End of Part 1
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