I am a farmer who grows food corn and feed corn in Nebraska. I also have an interest in a farmer-owned fuel-ethanol plant in central Nebraska. I have some questions for those who claim that the recent move up in prices for corn (due to the fact that more fuel ethanol is being made from corn) will cause food prices to “soar.”
I wonder if the “soaring food prices” fearmongers realize that most foods produced with corn have a relatively low corn-cost to final-product-value ratio. For example, a bag of white corn chips sells for $3.49 for 13.5 oz. If 1 lb. of corn is used (even allowing 15% waste), you can make 56 bags of chips from one bushel of corn. If the price of white corn were to double from $2.80 to $5.60, the value of the corn in that bag of chips would go from $0.05 to $0.10. This means that same bag of chips would now need to increase from $3.49 to $3.54 to maintain the food processors' profit level. The increase is only 1.4%. Is that soaring?
To put this in perspective, most wage earners receive a 2 to 5% cost of living increase each year.
I concede that corn chips are at the low end of the corn-cost to final-product-value ratio. At the other end of this scale is beef. Even with beef, the 60 bu. of corn used to finish one head amounts to less than 25% of the total end product value. If yellow corn were to double from $2.50 to $5.00, the end price of a market beef would need to increase from $1,080 ($0.90 × 1,200 lbs.) to $1,268. This is a 17% increase. We should also note that 30 of the 60 bu. of corn fed to one beef were run through an ethanol plant before being fed. As a result, 84 gal. of ethanol were produced. At $2.00/gal. for ethanol, we just added $168 to the value of that corn.
Although 17% is significant, it is paltry compared to crude oil's move from $40 to $70/barrel (a 75% increase). When we send our money to foreign oil-producing nations, it is gone. When we send more money to farmers for corn and cattle, they borrow additional money and spend it all on things that the consumers of our food are producing. How simple can this be?
It is incalculably better for our economy to send money to the Midwest rather than the Middle East. And the need for any federal subsidies/incentives now sent to farmers or for ethanol production is eliminated when the sectors achieve sustainability from the market rather than from the federal treasury.
I won't even mention what it costs per barrel of oil to ensure its flow by our military presence in the Middle East.
Think about it!