With Falling Grain Prices, Will Consumers See Lower Prices in the Supermarket?

The latest crop reports are in. Substantial increase in grain production outlook and decreased speculation have seen a sharp drop in prices for corn, wheat and soybeans, yet anti-ethanol critics continue to complain. What's going on?

In the agency's August 2008 World Agriculture Supply and Demand Estimates (WASDE), a clear picture of the resiliency and productivity of American farmers emerges. Farmers in the US have faced obstacles of historic proportions this year as flooding threatened to severely hamper crop production in the American Midwest. As should have been expected however, American farmers have once again stepped up to the plate demonstrating that they can meet the feed and fuel needs of our economy.

This is surely disappointing to the Big Food and Big Oil companies who very much want to derail the movement to renewable biofuels from wood chips, switch grass and other cellulosic materials - with the goal of producing 36 billion gallons in the energy bill passed last year. For much of this year they have mobilized their companies and others to blame ethanol for driving up the price of corn and food. Despite numerous studies documenting that the role of ethanol was minimal and the impact of skyrocketing oil prices was far greater at every level of the food chain, these critics have kept up their drumbeat.

They ignored a study from Texas A&M University which found that reducing the level of ethanol production would have little, if any, impact on corn prices and that high oil prices were the dominant driver. A more recent study by economists at Purdue University found that skyrocketing oil prices, not ethanol production, accounted for 75% of the increase in corn prices.

Despite all the adversity, farmers paid no heed to the attacks and went about their business. And their dedication and hard work is now coming into focus.
According to the USDA's new report:

• Corn yields are expected to exceed a stunning 155 bushels per acre, the second highest average yield in history. These impressive yields are expected to produce nearly 12.3 billion bushels of corn, the second largest crop in history. As a result, corn supplies are expected to be higher than anticipated, providing enough corn for all users.

• US wheat production is expected to be the largest in 10 years and 20% higher than 2007. Wheat stocks, by extension, are expected to rise 88% from last year, providing enough wheat for all users. Globally, wheat production is expected to set a record at 670.8 million tons, up 10% from last year.

• While the resiliency of American farmers is extraordinary, the response to growing demand for grains by the rest of the world's farmers is equally worth noting. Globally, total grain production is expected to well exceed 2 billion metric tons, increasing 3.5% over last year and 9.3 percent from two years ago. This record production is also expected to lead to supplies of grains to move higher, up 6% from last year.

Often overlooked as well is that grain prices have fallen precipitously in recent weeks. Since highs in June, corn prices have fallen 35% with cash contracts today offered at well below $5 a bushel. Likewise, wheat prices have spent the majority of the year falling. Since a peak in March, wheat prices are down 37%.

This is why this recent crop reports and declining oil prices are such good news for American families. Now food companies, which have been charging consumers much higher prices for food can start reducing prices to make food more affordable.

The bottomline: World agriculture is more than capable of fulfilling its traditional role as food and feed providers, while also contributing significantly to a renewable, sustainable energy future. Our nation's energy crisis will not solve itself. It will require bold action and thoughtful collaboration. Together with America's ethanol industry, American farmers stand ready to play our role in helping to feed America and other parts of the world while reducing America's dependence on foreign oil.

Comments

[dadw5boys]

Grain estimates are high about 1/5 above what the Farmers estimate .

[IntrepidReader]

You would NEVER guess that corn and wheat prices (or for that matter, oil) had been going down steadily because grocery store prices have been going up on a weekly basis. Some increases have been steep and abrupt, like an item I had been buying for 3.99 went to 4.99 in a single jump. The cheapest loaves of store brand white bread are still around 1.29 a loaf, up from the 99 cents of a year ago. Some of the trendy whole grain honey wheat artisan baked stone ground organically grown by elves breads are so expensive they should be displayed on blue velvet pillows, like fine jewelry.

One thing I did notice, however, is that eggs have dropped back to around 1.25 a dozen, from a high of around 2.75 several months ago. Since I never had a clue why eggs had skyrocketed in price, I have no idea why they've gotten reasonable again.

[Novista]

Another voice:

http://www.sciam.com/article.cfm?id=grass-makes-better-ethanol-than-corn

As for corn, the overall cost-benefit ratio doesn't look like a magic wand. Fossil-fuel usage for farm machinery, heavy usage of fertilizer, pesticides, herbicides, and insecticides -- all petrochemicals. More expensive delivery of the product. Tack on the 51 cent per gallon subsidy. And what's the sense of the protective tariff to keep cheaper Brazilian sugar-cane based ethanol out?

[dadw5boys]

I am suprized no one has gone back to making Wood Alcohol like Eastman did during World War ll .

[lapoutlander]

Not surprising given it is quite toxic ( http://en.wikipedia.org/wiki/Methanol#Health_and_safety ). Ironically drinking ethanol is a first aid treatment ( on doctor's orders naturally ).
The toxicity and risk to water supplies is why so much effort is being made to convert wood and other cellulose to ethanol not methanol (wood alcohol ). If we could handle the environmental risks methanol would be a logical choice since it is easy to produce from natural gas (or any source of syngas and hydrogen). That would solve the problem of using natural gas for transportation (natural gas takes takes too much energy to liquefy to be efficient).

BTW if you are thinking of putting methanol in your gas tank be aware it may eat away at some types of plastic in the fuel system. The more you put in the faster you will find out if your car's fuel system was designed to take it...

[JBS]

Too bad there ain't no way to fuel automobiles with SNAKE OIL!

[ImmanuelGoldstein]

This country will never pay any signifigant part of it's liquid fuel bill with biofuels, not with any society that looks anything like ours. We could put every square inch of arable cropland over to ethanol and still we wouldn't become energy independent (what would THAT do to food prices?). And we probably wouldn't gain one net BTU either. The fact is that burning food in our Canyonero's is stupid no matter what temporary price relief we may be enjoying and (real world, the kind you can actually buy) Ethanol=Starving the Poor.

[Thermodynamics]

The public thinks that a gallon of ethanol can replace a gallon of oil. Not so.
As every dieter knows, oils are a more concentrated source of energy than carbs.

76,000 BTU per gallon of ethanol
116,000 BTu per gallon of gasoline

In terms of energy content it takes 3 gallons of ethanol to replace two gallons of gasoline.
On the plus side, ethanol is a high octane fuel like premium gas. Engines can operate at higher compression ratios which helps efficiency a little.

So E10 (10% ethanol) is about the same as gas but burns cleaner.
E85 (85% ethanol) has significantly less energy than gasoline.
An average car using E85 loses about 25% of its mpg. A car that gets 20 mpg with gas gets 15 with E85.
http://www.fueleconomy.gov/feg/byfueltype.htm

GM's SUVs get 10 mpg in town using E85.
So when Sis and Mom make a round-trip to the mall in the Tahoe they use 2 gallons of E85.
That is a lot of grain alcohol - enough to make 10 gallons of Purple Joy Juice, have a two-day bash, and burn down the Signa Nu house.

Seriously, both petroleum and alcohol are valuable for use as chemical feedstocks and should not be wasted as fuel for vehicles.

[AustinMillbarge]

Corn ethanol IS the answer -- I'll give you a couple of reasons why:

1. Environmental -- Clean, corn ethanol is miles ahead of dirty, crude oil.
2. Economy -- Prarietown, USA is booming. This is a good thing.
3. Foreign Relations -- It's better to use American energy than oil from dangerous Arab states.

[lbsaltzman]

Large scale Monoculture of corn and soybeans are the problem not the answer. They are an energy intensive way to produce food that is contributing to global warming. The pesticide and chemical fertilizer runoff from this form of agriculture is ruining rivers and coastal waters creating massive dead zones. Far too much of these agriculture products are used as animal feed, and for unhealthy junk food.

The article also ignores that corn ethanal barely produces more energy than it takes to create it in the first place. And whether the corn or soybeans are used for food or for ethanol, the industrial agriculture used to create these crops is dangerously degrading the soil, and depleting aquifers.

We need to return to sustainable polycultures to feed people. We need to stop growing massive crops to feed animals or to make ethanol. Corn feed beef is sickening America and it tortures the cattle.

There may be some hope for switch grass and other crops being experimented with, but at best they cannot keep our current energy wasteful economy going and growing. We must start to massively change how we live if humanity is to survive.

[HughHowe]

Everyone is quick to mention the energy input to make a gallon of ethanol but dont think about what energy input is needed to refine a gallon of gasoline. Most are surprised to find out that it takes more energy to produce a gallon of gas than what you get in return.

Ethanol is a good thing for our country. Its the only thing we have going for us to decrease our dependence on foreign oil which is definately a bad thing. Corn based ethanol is not the final aim and answer to our dilemma but is a start and a good one at that. We must move forward and continue to research newer and more efficient methods for biobased liquid fuels. Its a national security issue.

Fat oil cats want you to believe that ethanol is the reason for higher food prices because ethanol is their only compition. I'm floored and ashamed that so many buy into it especially since a barrell of oil was nearing $150 and is the biggest contributing factor to all the recent price increases in every sector of business.

[ImmanuelGoldstein]

We know what the EROI for petroleum is. It varies from 12-20:1 depending on where you get it and what kind it is. Back when we first started drilling in a big way it was as high as 100:1. For corn based ethanol we barely crack 1.0. I have NO idea where you are getting your information, probably pulling out of the air.

We could put every acre of cropland into producing ethanol and still we would be dependend on oil for almost all of our energy as the return on ethanol is so small. Ethanol is no meaningful competition for petroleum and won't be for the forseeable future.