Market Speculators, Oil Drive High Food Prices
The U.S. drought, disastrous as it is, does not signal Armageddon for food prices, biofuels and the poor. First, one needs to understand that the main drivers behind rising corn prices, even in today’s drought conditions, are the market speculators and hedge fund managers. Over the past 10 years, they have done more to spike the price of corn than any drought or natural plague and made millions of dollars in the process. Second, the price of oil is right behind these speculators in terms of causing a rise in food prices. The cost of petroleum-based fertilizer, planting, harvesting, transportation and processing are all adversely affected by the price of oil.
A corn crop of 10.8 billion bushels, while down roughly 13 percent, is an enormous crop, and one that will completely satisfy the domestic and export needs of America. It’s the sixth largest corn crop in U.S. history. Market speculators send the message that the sky is falling and make millions terrorizing people. America has been through this Chicken Little scenario time and time again and we, and the world, keep falling for it.
There is also an important point to be made regarding biofuels using 40 percent of the corn crop. That is a mischaracterization of the facts. More than one-third of the corn used in the production of biofuels is put back into the market as the high protein feed supplement distillers grains, used extensively in feeding cattle, dairy, hogs and poultry. Only the corn’s low-feed-value starch is used in the production of biofuels; all the protein and other nutrients are processed into animal feed. So the 40 percent figure that is bandied about is, in reality, significantly lower, with some projections showing the actual amount of corn value removed from the market is less than 20 percent. The world is protein poor, not starch poor. It seems that this fact is almost always inadvertently, or intentionally, lost in the reporting.
The drought has presented an opportunity for those opposed to biofuels in the U.S. and other western countries, to mount an aggressive campaign to minimize or even stop its use. The U.S. biofuels program has reduced the price of gasoline consumers pay at the pump by 40 cents per gallon, using the most conservative estimate, created more than 400,000 jobs and pumped billions of dollars into the U.S. economy and now replaces fully 10 percent of all the gasoline used in America.
Congress needs to be very careful not to fall for this erroneous and mindless assassination of biofuels over food versus fuel when the economic, energy, environmental and security benefits of the biofuels industry are so enormous.
That’s the way I see it.
Author: Mike Bryan
Chairman, BBI International