Friday, January 12, 2007

High Demand Causes Surge in Corn Prices

As predicted by many, increasing demand for corn--driven largely by ethanol plants and foreign buyers--has driven corn prices to their highest level in more than a decade. Increased corn prices will have a ripple effect on many segments of the economy.

First, the obvious: higher prices on corn that we eat. And not just corn-on-the-cob and canned/frozen corn; prices will increase for corn tortillas and shells, corn chips, and anything that uses high-fructose corn syrup. Between them, that covers a huge array of products. But corn is also widely used as livestock feed, so higher prices for corn will also increase prices for meat.

As farmers and ranchers shift to using other grains--such as wheat, oats, and barley--for feeding their livestock, the increased demand for those grains will also increase prices for products based on those... flours, breads, oatmeal, beer, and countless other products are based on the grains grown in this country.

And I haven't even mentioned the ethanol itself yet. Higher prices for corn will obviously increase the input costs for ethanol production, making ethanol less economical than it currently is.

It is increasingly obvious that corn-based ethanol will never be the cure (or even a significant part of the cure) for our energy woes. A study conducted by the University of Minnesota has already demonstrated that if all corn grown in this country were converted to ethanol (leaving nothing for animal feed, human consumption, or as corn syrup for feeding our gluttunous desire for sugar), it would be able to offset 12% of our gasoline demand.

Until cellulosic ethanol techniques are perfected, trying to use ethanol as a fuel source is a "solution" that will only benefit the farmers who are enjoying the higher prices.

NOTE: Cross posted to my personal blog, where I tend to cover topics with more of an economic focus.

No comments: