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Report suggests corn for ethanol not to blame for food prices

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Report suggests corn for ethanol not to blame for food prices

 

With the summer season beginning amid reports of price increases in the grocery store aisle, a press release from the American Coalition for Ethanol (ACE) urges consumers and the media to examine the role that energy prices play in food costs before joining the chorus of ethanol critics conveniently blaming higher grocery prices on corn.

New research, conducted recently by economist John Urbanchuk of LECG, LLC, found that rising energy prices have twice the impact on the Consumer Price Index (CPI) for food than does the price of corn. The full report, “The Relative Impact of Corn and Energy Prices in the Grocery Aisle,” is available at http://www.ethanol.org/pdf/contentmgmt/Impact_of_Corn_and_Energy_Prices_in_the_Grocery_Aisle_June_07.pdf , or on the ACE website. http://www.ethanol.org/

 

The study finds that “a 33 percent increase in crude oil prices results in a 0.6 percent to 0.9 percent increase in the CPI for food, while an equivalent increase in corn prices would cause the CPI for food to increase only 0.3 percent.”

 

This shows that increasing petroleum prices have at least twice the impact on consumer food prices as an equivalent increase in corn prices. Consumers might pay an additional $10 for groceries due to corn prices, but at the same time they pay an additional $20 to $30 due to escalating fuel prices.

 

“Critics of ethanol are stirring controversy where none exists, because higher food prices have more to do with $3.50 per gallon fuel than with $3.50 per bushel corn,” said Brian Jennings, ACE Executive Vice President. “While corn prices might add $10 per year to a person’s grocery bill, skyrocketing gasoline prices are taking an additional $10 a week out of peoples’ pocketbooks.”

 

While corn is an ingredient in only some grocery items – mainly livestock, dairy, and poultry – all grocery items are dependent upon energy for production, processing, packaging and shipping. These non-farm costs make up the majority of the real cost of food; according to the USDA, 81 cents of every food-cost dollar pays for expenses such as labor, packaging, advertising, transportation and energy costs.

 

“If corn prices due to ethanol demand do indeed add a couple of cents per day to Americans’ food bills, this is a great value for creating thousands of new American jobs, breathing cleaner air, saving billions in farm program costs, and lessening our dependence upon expensive imported oil and gasoline,” Jennings said.

 

Since January of this year, the retail price of gasoline has gone up by more than a dollar. These record or near-record gas prices cost Americans an additional $500 a year just to fuel up their vehicles, not to mention the increased prices paid for all manner of consumer goods dependent upon transportation.

 

“Record high oil and gasoline costs are cutting deeply into American consumers, and the only way to shake off the heavy burden of fuel costs is to find alternatives,” Jennings said. “Ethanol is the most real, meaningful alternative fuel available today – a true bright spot in an otherwise bleak energy supply picture. Ethanol is part of the solution, and the farmers and entrepreneurs of the U.S. ethanol industry are taking action to help America get its energy situation in order.”

 

 

 

 

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Has anybody been paying attention to what corn is doing. It's down again today so new crop price is $2.93 here in town----a long way from the $4 to $5 that was being predicted a few months ago. I guess the ethanol plants might be able to survive another year. :)

Marty

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Cessna- the bad thing about the markets (unless you are a trader) is that they always overreact- the good thing is that they finally settle down in the middle near where the current value should be. Hopefully you sold corn near the high and someone else in the funds took the loss.

 

Are you coming over to EAA this year?

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Saw this posted on another group that I frequent.  It was in response to the food / ethanol price relation...thought it was pretty funny and all too true.

 

1 bushel of corn = 56 pounds

1 pound of corn = 3 cups

1 bushel of corn = 168 cups of dry cornmeal

1/4 of a cup = 1 tortilla

168 cups of corn = 672 tortillas

1 bushel of corn = $4.00

1 tortilla = $.006 (rounded up)

 

if corn was at $3.00 per bushel

1 tortilla = .0045 (rounded up)

 

If corn was at $2.00 per bushel

1 tortilla = $.003 (rounded up)

 

put another way.

 

at $2.00 corn you can buy 333 tortillas for a BUCK!

at $3.00 corn you can buy 222 tortillas for a BUCK!

at $4.00 corn you can buy 166 tortillas for a BUCK!

 

I suspect closer examination of many food items would reveal a similar cost structure...the corn (or even the total grain component) just isn't the major driver of the price.

 

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Similar story from CNN Money:

 

VIDEO from Medialink and General Motors: Is the Increase of Ethanol Production Really Raising the Price of Food?  July 26, 2007: 03:23 PM EST

 

NEW YORK, July 26 /PRNewswire/ -- As a replacement for gasoline in automobiles, ethanol is touted by the President and Congress as a solution to reduce our dependence on foreign oil. But as ethanol production has risen this year, so has the price of corn, the primary grain used today to produce ethanol. That has many people blaming ethanol for the rise in food prices.

 

    (See video from General Motors  at:  http://media.medialink.com/WebNR.aspx?story=33662)

 

A box of corn flakes only has a nickel's worth of corn.  What impacts consumer food prices far more than the price of corn is the energy, marketing, and packaging -- everything else that goes into bringing a box of corn flakes into grocery stores. In fact, studies show that the price of gasoline has more than twice the impact on consumer food prices than does the price of grain..

 

All automobiles are capable of running on fuel that is 10% ethanol and 90% gasoline. Flex Fuel vehicles can run on up to 85% ethanol. Today, there are around 6 million Flex Fuel vehicles on the road that reduce dependence on petroleum, reduce CO2 emissions and reduce the amount of imported oil.

 

According to the National Corn Growers Association, farmers in the U.S. planted nearly 93 million acres of corn this spring-the most since World War II. The record acreage was in anticipation of greater demand for ethanol, and the Corn Growers predict there will be plenty of corn for food and fuel.

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All automobiles are capable of running on fuel that is 10% ethanol and 90% gasoline. Flex Fuel vehicles can run on up to 85% ethanol. Today, there are around 6 million Flex Fuel vehicles on the road that reduce dependence on petroleum, reduce CO2 emissions and reduce the amount of imported oil.

 

But how many people are actually running E85?

 

I'll bet not even 25% of Flex-fuel vehicles are running E85, And I'll also bet the at least 75% of the owners even know what that Flex-Fuel badge even means...

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You are probably very correct... My tank is half full... ;)

 

Of course it doesn't help about all the stuff you read about E85 destroying fuel systems, the news putting out how worthless E85 is.. and the fact people just really have no clue what it is.

 

Very Sad

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