The Backlash Against Ethanol Increases.

Comic by Stuart Carlson, found on BalancedFoodandFuel.org

The Cattle Network summed up the brewing battle between food companies and the National Renewable Fuels Standard in their headline: New Ethanol Studies: Little Effect On Gas Prices, Significant Pressure on Food. The article, one of hundreds making the rounds online and in print, told of two recently released studies that directly contradict what the USDA was telling reporters in May.

The two studies were conducted by former chief economist of the U.S. Department of Agriculture, Dr. Keith Collins (his entire study can be found here in PDF form) and Thomas Elam of FarmEcon LLC. They were released for the end of the EPA public comment period on a request by Governor Rick Perry to roll back the ethanol mandate.

From Dr. Collins' study:

The increase in corn demand due to ethanol is rising faster than growth in corn yields per acre. So long as that situation continues, corn will have to attract acreage from other crops to meet its expanding demand. This shift will mean higher prices for all crops that compete, directly or indirectly, for acreage with corn. The market projects a continually tight corn supply and demand balance for the next several years, evidenced in current high cash prices and futures prices for the next several years.

With prices soaring and producers and consumers looking for relief, organizations have started to pull together to battle pro-corn-based ethanol supporters. The Coalition for Balanced Food and Fuel Policy at BalancedFoodandFuel.org describe themselves as "An alliance of agricultural groups concerned about the impact that ethanol policy may have on the competitiveness of animal agriculture, exports, the food industry and ultimately the consumer, who are experiencing higher food prices." Their coalition includes the National Chicken Council and the National Cattleman's Beef Association.

The Food Before Fuel Campaign, found at FoodBeforeFuel.org says they were "Created to urge public officials to revisit and restructure policies that have increased our reliance on food as an energy source, and to carefully address how to develop alternative fuels that do not pit our energy needs against affordable food and environmental sustainability." They are supported by many of the same agricultural organizations as the Balanced Food and Fuel Group, but also include public, private, and retail interests.

While the ethanol backlash is growing, it still has supporters. U.S. Sen. Charles Grassley, R-Iowa said that there are other reasons behind the campaigns against ethanol:

American consumers need to know that a few big food companies are jeopardizing our efforts toward energy independence simply so they can raise the price of food and increase their profits.

We will see who wins the first major battle on July 22, when the EPA has to rule on whether to waver Governor Perry's petition.

Further Reading:

• CNN Money on ethanol and the food price spike.
• Market Watch on the joining together of the food industry to lobby for a partial rollback of the Renewable Fuels Standard.

Midwest Flooding = Higher Meat Prices

The world continued to watch the Midwest this week for signs that the worst of the flooding was over. Although MSNBC and other outlets are reporting that thunderstorms are disappearing from the forecasts, the effect the flooding will have on food prices is on everyone's mind.



While the Associated Press had a positive outlook on corn, pointing out that the crop prices fell on Friday with favorable weather in the Midwest, the Times Online UK Edition reported that experts are predicting the US will produce 15% less grain than last year due to the flooding. Coupled with a greater demand for corn for ethanol, and an increased cost in soybeans, some farmers have begun selling off breeding animals to offset costs. More from the Times article:

Tyson Foods, the giant Arkansas-based meat producer, has predicted that retail chicken prices will have to jump by double-digit percentages in 2009 for poultry processors to recoup their feeding costs. The cost of food is increasing at its fastest pace in 18 years.

The Chicago Sun-Times echoed this sentiment by reporting:

Pork prices could be up as much as 30 percent next year because of production cutbacks, said John Lawrence, an economist at Iowa State University. Prices of beef and poultry products are likely to be at least 10 percent higher by the end of this year, he said.

While these are just estimates, the USDA plans on releasing their official acreage report on June 30th (a detailed press release can be found here). They are quick to point out, however, that the report will not include the most recently impacted areas of the Midwest Floods. They will conduct more research in July, and an updated report will be available in the August 12th Crop Production Report.

Further Reading:

Bloomberg on the possibility of rising wheat prices.

Bad Days for Tomatoes and Corn.

Food was front and center in the news this week. Flooding, salmonella outbreaks, and soaring oil prices topped headlines, and while wheat prices fell, the general mood on any possible relief for raising food costs was somber.

At the beginning of the week tomatoes were pulled off of grocery store shelves and restaurant menus after the FDA issued a Salmonella warning for raw red tomatoes. So far over 200 people have become ill, and the FDA is still trying to determine the source of the outbreak.

In the Pacific Northwest, grocery stores and farmers were quick to respond to the warning. The News-Review Today reported that places like Sherm’s Thunderbird pulled its tomatoes until learning their source was safe, while the Dairy Queen in Roseburg joined chains like Mc Donalds and Chipotle, stating they would keep tomatoes from their hamburgers at least through the weekend.

While Oregon's Caruso Produce was cleared by the FDA, other farmers were not having as easy of a time. Michael Stuart, president of the Florida Fruit and Vegetable Association, spoke to NPR about the effect the warning was having on the growers:

They're extremely frustrated in that business has basically ground to a halt at this point in time. We're anxiously awaiting a determination by the Food and Drug Administration as to what the specific source of this problem is. And until that happens, quite frankly, we're dead in the water.

You can read the entire NPR piece here.

As the nation threw out tons of possibly contaminated tomatoes, commodity watchers kept an eye on corn as prices rose all week to end at $7.357 per bushel; a new record. Major flooding throughout the Midwest destroyed thousands of acres of crops, and with forecasts predicting more rain, analysts are predicting prices could surge above $8.00 per bushel.

MarketWatch reported Monday on the already decreased 2009 corn crop, and as the week went on analysts told reporters that the flooding would have major consequences. Chad Hart, an agriculture economist at Iowa State University told the Chicago Tribune that:

Given the flooding we see today, we're likely to see prices go significantly higher based on the weather....This is a significant event. We were already having production issues before this occurred, all across the Midwest. This can have gigantic implications.

Conversely, the National Corn Growing Association's president Ron Litterer released a hopeful statement about the crop:

In Iowa in 1993, record rainfall reached well into the summer months and severely affected the crop that year. That is not the long-term forecast for 2008, and there’s still a lot of the growing season left, so we are hopeful the final results will not be as devastating as it was 15 years ago. While the U.S. Department of Agriculture has recently projected our third-largest crop ever at more than 11.7 billion bushels, we know that the final number depends on how the weather holds.

Thanks to a large surplus of beginning stocks from the record 2007 harvest, we came in with a good supply. We are watching the skies at home and tracking the updates from Washington while working hard doing what we do best – growing corn to help feed and fuel the world.

The long-term effects of the tomato and corn issues are still to be seen, but many experts are warning that we have not seen the peak of rising prices.

Further Reading:

• The New York Times on commodity prices climbing
• The Associated Press on the surge in corn prices
• Reuters on the FDA's slow moving progress on food safety
  

Pointing Fingers and Asking Questions

As the week ended with oil prices climbing more than $10 to close at a new record high of $138.54 and food prices continued their upward climb, analysts, farmers, politicians, and consumers began publicly pointing fingers and demanding answers.

The biggest spotlight in the blame game was cast upon speculators of the futures markets. Felice Pace of Goat: A High Country News Blog wrote:

If anyone still thought the reason for high gasoline and diesel prices had everything to do with supply and demand the past week should have disabused them of that fantasy........ The truth is that the sudden jump in the price of oil futures was purely an artifact of rampant and unrestrained speculation.

Even the Senate Commerce, Science, and Transportation Committee joined the parade, holding a hearing to discuss commodity speculation. Billionaire hedge fund manager and speculator George Soros even pointed the finger at the speculators, saying:

It is intellectually dishonest, potentially destabilizing and distinctly harmful in its economic consequences.

The Salt Lake Tribune has more on the Senate Hearing here, while Howe Street's Mike Larson gives his opinion of speculators and the fault of the government in his column.

Conversely, Secretary of Energy Samuel Bodman told world energy officials in Japan that supply and demand was the cause of high oil prices. In an interview with reporters he dismissed the backlash against speculators and said:

I would devoutly hope we ... see a reduction of the use of oil in the world on the one hand, and an increase in the supply so we can see some mitigation in the pressure on price.

MSNBC reported more on the meeting emphasizing greater oil supply here and here.

Many consumers are wondering who is making all of the money from these dramatic price increases. Farmers around the country have begun raising their hands to remind people that they are impacted from high fuel prices as much as the rest of us. Both the Pensacola News Journal and the Naperville Sun ran articles with multiple quotes from farmers assuring readers that while their incomes may have increased so has the cost of doing business.

Interestingly, in the middle of all of the talk about price bubbles, devious speculators, and food shortages, the New York Times published a new article in their Food Chain series talking about how large investment firms are pumping billions of dollars into the farming industry, buying up things like land, gain storage, and fertilizer in mass quantities. From the article:

Mark Lapolla, an adviser to institutional investors, is also a bit wary of the potential disruption this new money could cause. “It is important to ask whether these financial investors want to actually operate the means of production — or simply want to have a direct link into the physical supply of commodities and thereby reduce the risk of their speculation,” he said.

By the end of the week the only clear winners were discount stores, who proudly stated that all of these high prices have driven customers back to their stores in search of deals on food and essential items. The Financial Post has a look at their numbers here.

Small Rays of Sunshine

The news was peppered with small victories for the food industry this week, although reporters were hesitant to actually call it "good news".

Global food prices dropped in April (for the first time in 15 months), and the Food and Agriculture Organization of the United Nations released a report stating:

Agricultural commodity prices should ease from their recent record peaks but over the next 10 years they are expected to average well above their mean levels of the past decade.

"Coherent action is urgently needed by the international community to deal with the impact of higher prices on the hungry and poor,” Jacques Diouf, Director-General of the FAO.

You can read the entire press release and learn more about the information in the report here.

In the US, the media focused on the good and bad news about corn. Market Watch reported that corn fell 0.9% a bushel after the USDA announced that it would open land for authorized certain acreage enrolled under the Conservation Reserve Program (CRP) to be available for hay and forage after the primary nesting season ends for grass-nesting birds.

"It will significantly increase the amount of feed available to the livestock industry while still maintaining CRP's environmental benefits," said Secretary of Agriculture Ed Schafer.

Not all news outlets were even reporting the change in prices. MSNBC chose instead to run a contrasting story about the slow start to this year's US corn crop, sighting poor weather for putting things behind schedule. The second paragraph of the article also reminded consumers of the news we have all been hearing for months: things might get worse:

And depending on the right mix of sun, heat, rain and cool, it could drive prices up even further. That may mean consumers will be spending even more for groceries like soda, cookies, cake or anything that contains high fructose corn syrup and for any meat that relies on corn as animal feed.

Are some of the costs of food being driven up by actual changes in the crop cycle, or are they products of fear and the continuous bad news in the media? Are food prices skyrocketing because of oil?

Hopefully we will get some answers soon; on Thursday the The U.S. Commodity Futures Trading Commission announced:

...a number of initiatives to increase transparency of the energy futures markets. The measures will expand the amount and quality of information received from energy traders to further the integrity and oversight of our nation’s futures markets. The recent dramatic increases in the price of crude oil traded on futures exchanges make these efforts paramount. The implementation of today’s measures will improve oversight of the energy futures markets to ensure they reflect fundamental economic forces of supply and demand, free of manipulation and fraud.

Here's hoping this is the beginning of positive change after months of bad news. And speaking of news, do you feel the major media outlets are too slow to announce any good news about food and gas costs, or are they being rightfully cautious?