Increased production of corn-based ethanol raises US food prices
Pastor Dale Morgan
Increased production of corn-based ethanol raises US food prices*
10/02/2007 18:46 Source: AP ©
Corn-based ethanol production has influenced U.S. food prices this year
but not nearly as much as oil prices and weather problems.
Acting USDA Secretary Chuck Conner said ethanol "clearly had some
impact" on food price inflation, but the fuel is getting too much of the
blame "for what's happening in grocery store aisles."
Heightened ethanol production is a cornerstone of President George W.
Bush's energy policy and farmers increased the amount of corn they
planted to feed the fuel frenzy. But more ethanol also helped drive up
the prices of livestock feed and other corn-dependent food products.
Food prices have increased about 2.7 percent in each of the last three
years. But a jump of between 3.5 percent and 4.5 percent is expected
this year before retreating a bit to between 3 percent and 4 percent in
2008, Conner said at a conference hosted by the Renewable Fuels
Association, which represents the U.S. ethanol industry.
Global weather conditions, including droughts in Australia, as well as
rising demand in China and elsewhere drove up wheat prices. And the
recent record highs for retail oil prices also add to inflation by
increasing the costs of everything from packaging to transportation,
Conner said. He did not specify how much each factor contributed to
rising U.S. food prices.
Ethanol producers, meanwhile, have taken a hit to their bottom lines in
recent months because corn prices remain high, while the price of
ethanol has slid by 30 percent due to a supply glut. VeraSun Energy
Corp. on Monday said it would halt construction on a biorefinery and
producers' stock prices have fallen recently on a weak industry outlook.
Conner said he would prefer if the ethanol price drop did not happen,
but said long-term investments and production goals remain in place.
"Margins are very slim right now, but we can handle it," said Neil
Koehler, president and chief executive of Sacramento, California-based
Pacific Ethanol Inc.
Koehler also blamed the oil industry for not absorbing as much ethanol
as it could at a time when crude prices remain above $80 per barrel.
Refiners contend they have limited capacity to blend the fuel with gasoline.
Still, ethanol production is booming. Archer Daniels Midland Co.,
Aventine Renewable Energy Holdings Inc. and other producers added a
total of 1.2 billion gallons (4.54 billion liters) of capacity and 15
new plants through March, which matched the total additions in all of
2006, Conner said.
Meanwhile, the government expects U.S. farmers will produce a record
13.3 billion bushels of corn this year, with about 25 percent used for
ethanol. But the number of bushels used for livestock feed also will
rise slightly to 5.8 billion bushels, he said. (One bushel of corn
equals 25 kilograms).