A frightening number was released by the labor department on March 15. February prices for “crude foodstuffs and feedstuffs” were 22.73% higher than a year ago. Wholesale consumer food prices were 6.8% above last year, too. Even more frightening, the February number was 29.25% higher than it was in May, its lowest point of 2006. It has all the potential of being worse and longer lasting than the consistent double digit increases we saw from mid-2003 to mid-2004.
Most of the increase we saw in February is the price we’re paying for trying to buy energy independence with our corn crop. It’s a double whammy, a perfect storm of a too-quick demand on American agricultural resources to pay for decades of unbridled energy consumption and a need by elected officials to prove they’re doing something to end our dependence on tenuous Middle Eastern sources of oil.
The short term result? Corn prices have almost doubled. As Bob Dinneen, president of the Renewable Fuels Association, predicted, the market would right itself with increased corn plantings this spring. As others warned, those increases would come at the cost of less acreage planted in other crops like soy beans.
Fewer soy beans, of course, means higher prices for soy beans. Same thing goes for every other grain crop. The price of corn will moderate but it will never get back to pre-2007 levels, nor will the price of any other feed grain.
Probably the biggest pain in consumers’ wallets will be caused by the higher price of high fructose corn syrup, the principal sweetener for almost every sweet thing we eat or drink from Coke to Twinkies to chewing gum. Coca Cola, one of the largest buyers of HFCS, is already looking around for a cheaper substitute. Wrigley’s, makers of Spearmint, Doublemint, Big Red and Hubba Bubba chewing gum, just announced the price of a pack is going up by 10%.
Feedyards, trying valiantly to keep escalating feed costs under control, are wrestling with the hugely variably nutritional content of distiller grains, the byproduct of ethanol production. A recent “Five minutes with Bryan McMurry” interview goes into the details of the nutrition problem.
One man in the ethanol business, a friend who grew up years ago in the South, said “Think of ethanol as white lightening…hootch…rotgut…because that’s what it is. And think of distillers grains as a polite name for the mash that’s left over at the end…because that’s what it is.”
Whatever you want to call it, finding a way to work with distillers grains will be a fact of life for anyone feeding cattle on a large scale. Much of the added cost of feed will have to be absorbed somewhere in the production and distribution chain before beef reaches price sensitive consumers, meaning the cattleman is going to take a right cross and a vicious uppercut.
The right cross comes from his tax dollars which are funding the half-a-dollar+/gallon government price support for ethanol production. The uppercut, of course, will be the blow to their wallets since most of the added cost of taking cattle to market will probably come from somewhere near the cow/calf end of the production line.
And then the knockout blow will come when that same cattleman returns from a trip to the supermarket later this year with a basket of food that might cost 10% to 20% more than it did last summer. If you have some doubts about the potential size of the increase, go back five paragraphs and click on “high fructose corn syrup.”
Makes you wonder what’s going through the mind of the cattleman or hog producer who’s got a few hundred acres planted in corn. He’ll quickly find out that fuel for mechanical and human energy is interdependent, especially when we start using grain crops to help feed our insatiable fuel habit.