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The Real Culprit Behind High Food Prices

August 15, 2012, 2:06 pm

Here is an amazing bit of data on where the US corn crop goes:

 

The Department of Agriculture says the corn crop in the US will be down 13% due to the drought.  But corn available for food uses is down 40% due to the ethanol mandate.  You do the math.  Wait, I don't trust your math.  I will do it for you:

PS-  It's kind of amazing the supposed worst drought ever has dropped corn yields by just 13%.  Hurray for modern agriculture.   This year we will still produce about the same amount of corn we did in 2006.

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Category: The Corporate State
  • MingoV

    I tried to find a widely accepted scientific definition for drought. I couldn't find one. The most common one was from hydrology that basically said a drought was a period during which the soil had less moisture than expected. There was no quantification. Thus, with a liberal interpretation of "less moisture than expected," every area in the world will experience droughts almost have the time.

    I propose a statistical definition of drought: a period of at least 30 days during which precipitation and soil moisture content are more than two standard deviations below their 20 year means for the same period. Using that definition, most of the 'droughts' (including this summer's midwest drought) would disappear.

  • David W

    Of course, corn production is also up due to the mandate. Extra profits in the hands of farmers was after all the whole point. (no, I don't believe the politicians had any non-venal reason, just public excuses)

  • LoneSnark

    The best part: The Ethanol use is mandated, so as the price of corn rises the use of corn in fuel cannot BY LAW be reduced. So 100% of the price elasticity of the market must come from Food and Feed, and Food is not what I'd call heavily price elastic.

  • MJ

    Hooray for drought-resistant, genetically-modified corn crops!

  • Leonard Huff III

    I am 57 yrs old. I grew up on a farm in South Texas. Droughts are part of the environment in this part of the country. In the late 1950's and early 1960's, I personally expierence the droughts and floods that broke the drouths down here during that period(Hurricanes help break the droughts).

    That was before the days of the so call climate chanege(warming ect.) that is mention all the time now a days.

    My Dad mention to me a few times when I was growing up here in South Texas that it was was a accident if it every rain here!

    He was right, because we are going through the second year of a major drought and it does not look good.

    Mother Nature is hard to deal with sometimes but we will survied.

    Have A Nice Day!

  • Matt

    MingoV: The Palmer Drought Index and Crop Moisture Index are the two main measurements of drought. Not perfect but look at soil moisture, normal rainfall and affect on various things by county. REasonably good measuring tool.

    Lonesnark: Not quite right there. % of gasoline usage is mandated for renewable sources (RFS2), with corn used for ethanol a big one. However, it is not perfectly inelastic. Currently have lower gasoline use, so the requirement goes down slightly. Blenders/ethanol companies can use RINS, which are credits from prior years where they went over the mandate, up to 20%. Also can defer mandated gallons forward for 1 year, but must make up the next year. Lastly, we have been producing 10-25% OVER the mandate for the past 3 years. This recent update is a prediction that we will only produce to the mandate, so all of those bushels can be rationed. We currenlty have excess RINS over the current mandate of 2.5billion gallons. Nearly 1 billion bushels of corn that doesn't have to be consumed by "law."

    Coyote: Lastly, production may be down to 2006 levels and only 13% fall, but much of that is do to significanlty increased acreage planted. Obviously, some of this is credited to better hybrids with higher plant populations and more drought resistant. You said yields in your comment. Yields are down closer to 23% below trend.

    Also, don't forget that of the ethanol % for corn in your chart, approxiametly 33% of that goes to Dried Distillers Grains. This is a byproduct of corn ethanol production and is used for feed so it really should be added to your feed number for a fair comparison.

    Overall, corn use will get rationed. Government intrustion does make this happen more slowly, that is for certain, but the entire supply and demand cycle is not broken, just delayed and distorted somewhat.

  • MingoV

    @Matt: "The Palmer Drought Index and Crop Moisture Index are the two main measurements of drought. Not perfect but look at soil moisture, normal rainfall and affect on various things by county. REasonably good measuring tool."

    Those indexes are among the ones that define drought as being less precipitation or soil moisture than expected. The Palmer index uses the semi-subjective factor of soil moisture "demand." Both indexes start using the term 'drought' when precipitation or soil moisture are less than one standard deviation from mean values.

  • Grace Hatton

    Ag Secretary says only 3% of a cost of a loaf of bread goes to the farmer so the implication is that is all the difference the drought might make - - single digit increases.

    But I believe I saw that 60% of the grain crop is moved by boat on the Mississippi. The Big Muddy is getting so low that barges are not able to carry the full weight so they can move thru shallow areas. If things get worse, they won't move much at all. Then see what effect that has on food costs!

  • An Inquirer

    To add a bit more information: About 20% of current production of corn is due to the increase in atmospheric CO2 levels. Pre-industrial CO2 concentration levels were far below what was necessary for robust grain production.

  • http://www.facebook.com/rakelle.harward Rakelle Harward

    so we can either cut back on ethanol to use for food, and raise gas prices or cut back on food and still be able to drive and all that but we'd either starve or produce, livestock will be so expensive it'll be hard to feed everyone.