Couple of ethanol-related stories of note in the past few days:
Iowa’s ethanol industry is being squeezed by high corn prices that are partly due to the estimated 3.3 million acres of crops that have been destroyed by spring floods, Iowa Secretary of Agriculture Bill Northey said Friday.
“These kinds of prices are not profitable to produce ethanol at the current ethanol price,” Northey said at a taping of Iowa Public Television’s “Iowa Press.” “There will probably be decisions of whether they want to keep processing or not at these prices.”
Farmers can replant and still be covered by crop insurance, but coverage levels drop with each passing day, and late-planted crops could face the threat of frost in the fall, ag officials said earlier this week.
That is ironic. It is sort of like the fact that high oil prices are hurting oil refiners.
The next one spells out some of the now realized implications of tying our food supply to our fuel supply:
NEW YORK – Raging Midwest floodwaters that swallowed crops and sent corn and soybean prices soaring are about to give consumers more grief at the grocery store.
Rod Brenneman, president and chief executive of Seaboard Foods, a pork supplier in Shawnee Mission, Kan., that produces 4 million hogs a year, said high corn costs are already forcing producers in his industry to cut back on the number of animals they raise.
“There’s definitely liquidation of livestock happening,” and that will cause meat prices to rise later this year and into 2009, said Brenneman, who is also the vice chairman of the American Meat Institute.
Brenneman’s cost for feeding a single hog has shot up $30 in the past year because of record high prices for corn and soybeans, the main ingredients in animal feed. Passing that increase on to consumers would tack an extra 15 cents per pound onto a pork chop.
It’s a similar story for U.S. beef producers, who now spend a whopping 60-70 percent of their production costs on animal feed and are seeing that number rise daily as corn prices hover near an unprecedented $8 a bushel, up from about $4 a year ago.
“This is not sustainable. The cattle industry is going to have to get smaller,” said James Herring, president and CEO of Amarillo, Texas-based Friona Industries, which buys 20 million bushels of corn each year to feed 550,000 cattle.
Corn’s prices were already rising before the floods, driven up 80 percent over the past year as developing countries like China and India scramble for grains to feed people and livestock. U.S. production of ethanol, an alternative fuel that can be made with corn, has also pushed prices higher, prompting livestock owners to lobby Washington to roll back ethanol mandates.
For the record, my Dad is in the cattle business, and he at first thought the ethanol mandates were a great thing. When I testified against the proposed Montana ethanol mandate in 2005, he told my Mom “I don’t understand why he would testify against farmers.” I warned him at the time that these mandates were likely to distort markets and drive up prices in unexpected ways. I told him that I favor incentives, but mandates were not the way to go. But the government was intent on “helping”, and of course they have such a good track record on energy policy…