When corn farmers headed out to their fields last spring to plant an expected record-breaking harvest this fall, critics of diverting a large portion of the crop to ethanol production said the result would be higher prices for everything from a hamburger to a beer.

The growing demand for ethanol for fuel would drive up feed prices for beef, pork and poultry producers, the critics said, and even the price of a beer in your local pub would spike as former barley farmers switched to corn to jump on the ethanol bandwagon.

Nationally, a record 13 billion bushels of corn will be harvested in 2007, with ethanol producers buying up about 27 percent of the total crop, according to the U.S. Department of Agriculture. Last year, ethanol producers consumed about 20 percent of the corn crop.

In Colorado, farmers have also pumped up their corn production, according to Mark Sponsler, executive director of the Colorado Corn Growers Association in Greeley. Sponsler said the state's farmers have responded to soaring prices by planting about 300,000 more acres of corn this year.

"It's been a very positive response to a good market incentive," he said. "It is a significant increase."

Sponsler noted that corn production would likely have been impressive this year anyway without the incentive of high prices. Good early moisture before planting and timely rains during the summer growing season set the stage for high harvest yields, he said.



Prices stay high

Sponsler said farmers have been thrilled to see corn prices stay significantly above $3 per bushel after falling from a high of $4-plus-per-bushel earlier in the year. That means they will likely still get 80 cents to $1 more per bushel this year than a few years ago.

OK, that's the good news for local corn producers. After years of getting by - sometimes with the help of federal crop subsidies - they'll likely be paying off some debts and buying some new equipment this time around without taxpayer assistance.

But what about consumers? Will we be paying more for our hamburger and beer because more corn is being sold for ethanol?

The short answer is: Probably for a while. But not that much.

A study done earlier this year by the U.S. Bureau of Labor Statistics showed that, when comparing the price of milk, cheese, meat, ice cream, eggs and malt beverages in April 2006 with April 2007, the amount of increase was about 3 percent. That basically conformed to a 2.9 percent average annual food inflation rate increase over the last 25 years.

According to the Renewable Fuels Association, the real reason for the hike in food prices was the cost of energy used for production, transportation and processing - directly related to the rising cost of oil over the last few years.

Sponsler said there is a perception in the public's mind - promoted by the oil industry, meat industry and others - that growing corn for ethanol is the main reason for higher food prices.



Food-fuel debate

"The impact on food prices from demand for fuel is much lower than most media sources have been conveying," he said. "If a beef producer spent $4 a bushel compared to $2 for (feed) corn - and I'd wager there's not a cattle feeder in the state who's paid $4 a bushel because of contract pricing - paying $4 a bushel would only account for a 13-cent increase in a $2.69 quarter-pound hamburger.

"Overall, across all foods consumers purchase, they can expect roughly a 1.1 percent increase in the cost of their food that is attributable to the demand for corn for ethanol. It is not that significant."

Indeed, Terry Fankhauser, executive vice president of the Colorado Cattlemen's Association, said his earlier concerns about corn-for-ethanol jacking up feed prices and making meat more expensive have not come to pass.

"It looks like a record corn crop, and prices have not shot through the roof as we contemplated," he said. "I don't look for a measurable increase in beef prices."

Still, Fankhauser said the beef industry would like to see ethanol subsidies reduced or removed in the near future. "The playing field needs to be even," he said.

But Sponsler's main concern is that farmers don't plant too much corn and overwhelm the incipient ethanol production industry. While there are now 114 ethanol bio-refineries nationwide and another 80 under construction, the industry is still in its infancy and can only consume so much corn each year.

And that rush to plant corn may soon overtake demand, Sponsler worries.

"I think there is danger in that," he said. "The reason we're down now to under $3.50 (per bushel) is a hint that we're dangerously close to overproducing."

 

Steve Porter covers agribusiness for the Northern Colorado Business Report. He can be reached at 970-221-5400, ext. 225, or at sporter@ncbr.com.