By Whitney McFerron and Jeff Wilson -
Even a fifth consecutive year of record global corn harvests will fail to meet demand for food, fuel and livestock feed, reducing world stockpiles to the lowest in two generations.
This article is a perfect example of the lunacy of not including food & fuel in the government's official inflation calculations. The number the government reports bears no resemblance to what people experience in real life. Of course, I suppose there are the hand full of people, including the president, who have no idea what food and fuel costs because they never go the grocery store or the gas station. That is for their servants and the rest of us "little people".
The funny thing about this article is that it hardly mentions the relationship between corn and fuel prices.
Because of our (the U.S.) screwed up ethanol policy, some 25% of corn produced in the U.S. is used to produce ethanol. The ratio of fuel used to produce ethanol to actual ethanol produced is 1:1.5 (meaning for every 1 unit of energy consumed in production of ethanol only 1.5 units of ethanol energy are actually produced). I suppose that sounds good to most people. I mean if I could invest a dollar and get back a dollar fifty, who wouldn't do it right? Wrong.
In Brazil, the world's largest ethanol producer (& exporter) they make their ethanol from sugar cane. Sugar cane produces roughly 7-8 units of energy for every unit consumed in production. This is what has allowed them to become such a large producer/exporter. Oh, by the way, the U.S. imposes a $.54/gal tax on all imported ethanol from Brazil, so you can forget the free market taking over.
In the meantime we subsidize our own inefficient production of ethanol up to $.45/gal! (Note: that makes U.S. ethanol $.99/ gallon cheaper that Brazilian ethanol.) Yes, you heard me right, the U.S. government (USDA, actually, though you would think this ought to be handled in the Dept of Energy - but I digress) pays between $.10/gal & $.45/gal to the ethanol producer as a Volumetric Ethanol Excise Tax Credit (VEETC), to the tune of "$22.6 billion in ethanol subsidies since 2005. [With] Another $31 billion will be spent in the next three years."
So, here's the summary:
- We are channeling 25% of our U.S. corn production away from food and export production to produce a product that;
- is not very efficient to produce;
- provides fewer mpg of fuel and;
- must be subsidized to remain profitable while we;
- exclude the importation of cheaper ethanol into the U.S. by imposing tariffs.
- higher food prices for anything containing corn;
- higher feed prices for protein producers (beef, poultry & pork) which will in turn;
- force protein producers to reduce herd/flock sizes which will in turn;
- make protein (beef, poultry & pork) more scarce and therefore much more expensive.