Yesterday, the New York Times wrote:
With policies and subsidies to encourage biofuel production in place in much of the developed world, farmers often find it more profitable to plants crops for fuel than for food, a shift that has helped lead to global food shortages.”
Even though corn and other crop prices increased from 2006 to 2007, there is no shortage of food. According to the USDA National Agricultural Statistics Service U.S. farmers planted 92.9 million acres of corn in 2007 (NASS: Acreage), with average yield expected to be 153 bushels per acre (NASS: Crop Production). USDA says 3.4 billion bushels, roughly 26 percent of the expected harvest, will be converted to approximately 9.3 billion gallons of ethanol, leaving more than 9 billion bushels for food, feed and export markets, which would easily meet or exceed 2006 demand from these markets. Translation, plenty of food.
Food prices increased 4.1 percent in the United States from June 2006 to June 2007 for a number of reasons: increased corn prices, increased costs of oil, worldwide weather-related disruptions of food (droughts and freezes), and contamination scares.
Now fast-forward to October, 2008. Barron’s wrote on October 2, 2008,
“Corn prices, for example, fell 6% in Thursday’s trading, dropping to $4.55 a bushel – the lowest price corn has commanded since December. “
High food prices aren’t just bad for consumers, they’re bad for the biofuels industry.
“There were ominous signs for the [biofuels] industry even before the Wall Street meltdown,” writes the Associated Press.
“By 2007, corn and soybean prices charged upward, cutting into the profit margin for biofuels and leaving some plants without enough cash to operate.
Plant operators in Lilbourn said doubling soybean prices wiped out cash reserves just as the first batch of biofuel was produced.”
“…with commodity prices dropping, construction for some stalled biofuels plants has restarted.”
The take-home message, high food prices result from a complicated set of factors and affect not only consumers but the biofuels industry as well.