Ethnol and food prices

Here is an interesting article on the effect (or non-effect, depending on where you are standing) of ethanol production on food prices. I don't pretend to know what the truth is on most parts of the issue, but I think high corn prices have to impact dairy food prices. The story is much more complicated than that though. High grain prices, along with high everything else prices, contribute to farmers leaving the industry, which leads to more competition for the milk that is left. A year ago at this time we were paying $192 a ton for grain for the cows (before discounts). Now we are paying $259 for the same amount of grain. High grain costs also lead to surviving farmers feeding less of it, which lowers production and milk supply. As we speak, two farm families from this county (good friends of ours) have either sold the cows or scheduled the sale. These are folks who want to farm but can't because they got shellacked last year by bad weather and low milk prices while costs went up, in part due to ethanol production. This year milk prices are higher, but everything from corn to cotter pins costs more too. Everyone is playing catch up and not everyone can quite make it.Of course increasing exports matter too, as does increased demand.


Last year at this time we grossed between $13 and 14 per hundredweight of milk before deductions, (farmers pay to have a truck haul their milk to the plant, pay co-op dues, lab fees, state and national check off fees and any number of other deductions out of their milk check, so what you see is very much not what you get.) This year we are grossing nearly $21 per hundredweight. However, along with the increase in grain prices, partly driven by corn, fuel has nearly doubled. It takes a lot of that to grow food for over a hundred animals. . Despite careful management of natural fertilizers in growing our crops, when the milk leaves the farm so do nutrients from the farm, decreasing what is in the soil. Commercial fertilizer helps to replace that loss and to produce food for the cows. Fertilizer has more than doubled in price. We used to think we were getting nailed when we spent three or four thousand dollars in direct crop expense, (that is fertilizer, seed, and weed control). This year we are at almost eight thousand and will end up spending more than that. How much of the increase in fertilizer cost is fueled by increased demand for increased corn acreage for ethanol and how much by increased costs for fossil fuels? I can’t prove much either way, but both no doubt contribute.

Milk at the store around here was well under three bucks a gallon last year. Now even with a frequent buyer program it is over five dollars in some markets. Farmers going out of business because of high costs certainly curtails the milk supply, increasing demand and prices. Corn for grain is only one of those costs, but it is an important one. If ethanol production is part of the reason for grain price increases, it is part of the reason for higher food costs. Here is more on the matter.