No Runny Eggs

The repository of one hard-boiled egg from the south suburbs of Milwaukee, Wisconsin (and the occassional guest-blogger). The ramblings within may or may not offend, shock and awe you, but they are what I (or my guest-bloggers) think.

Are You Ready For Higher Food Prices (redux)

by @ 4:41 on June 16, 2008. Filed under Miscellaneous.

On May 6th I wrote that higher requirements for ethanol use would likely drive food prices higher throughout the year:

On March 31st, the USDA released its crop estimates for the year. Included was an estimate that acres planted with corn were going to drop 8% from the 2007. Even with the reduction in acreage the overall crop yield should be about the same as 2007 which was 13.1 billion bushels.

So we’ve got lots of corn, that’s good news.

Here’s the bad news.

in 2007, approximately 6.5 billion gallons of ethanol was produced. The 2007 Energy Security Act requires that 9.0 billion gallons of ethanol be produced in 2008. 2.8 gallons of ethanol come from each bushel of corn. That means that nearly 1 billion additional bushels of corn will be required just for ethanol production this year.

What do you think will happen to food prices when overall corn production is flat but corn demand for ethanol increases by nearly 50%? They sure as heck aren’t going down!

In a recent Rasmussen poll, 54% of Americans finally understand that burning food is hurting their pocketbook.

Maybe we aren’t a nation of sheeple afterall.

I’m sure you’ve all heard that there’s been a bit of extra moisture in the upper Midwest. Iowa, Wisconsin and Southern Minnesota have been hit hard with excess rain. Flooding of major cities or tourist destination in these areas have made the headlines of the MSM stories. While some attention has been paid to “flooded fields,” I haven’t seen anything report quantifying or talking about the impact of those soggy sowings.

The first sign that there are problems came in this update from the USDA. They have reduced their 2008 corn crop estimateby 400M bushels. That however, may be the good news in their report. Also contained in their latest update is that 2.5M acres are still unplanted, 1.3M of those are underwater in Iowa. The likelihood of successful plantings in these areas are greatly diminished and it is expected that in the next USDA update as substantial portion of those acres will be removed from the “expected to be planted” column.

Let’s say, conservatively, that only the Iowa acres are left unplanted. 1.3M acres at 148.9 bushels per average acre (which is very conservative as the yields in most of Iowa tend to be higher than the national average) means that nearly 200 million  additional bushels will be taken out of the 2008 forecast.

So let’s recap:

  • The original forecast said 2008 total corn production would be the same as 2007
  • Due to increased mandates, we will use at least 1 billion more bushels for ethanol production
  • The latest crop estimates say we are now producing 400 million bushels of corn fewer in 2008
  • The next estimate is likely to say the 2008 production will shrink another 200 million bushels of corn.
  • The full impact of flooding on the corn crop will not be known for a few more months.

A total of  600 million bushels of corn short from last year’s production with another 1 billion going to ethanol.   That means a total of  1.6 billion fewer bushels of corn that will available for food.

I didn’t major in Economics, only managed a minor, but what I did learn suggests that shrinking supplies and increasing demands don’t generally work towards the reduction of prices.  

I wonder which countries Barack will tell first that that due to our requirements to burn food for fuel, they won’t be able to eat at all?

Update: I’m beginning to feel like Carnac. Here’s an article from London Reuters talking about this exact issue.

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