The incessant “ethanol is responsible for the price increase of X” where “X” is every other ag commodity other than corn are both stupid and wrong. Stupid, because repeating this mantra won’t make it any more true than repeating “The world is flat” will make the planet into a pancake, and wrong because these ethanol malthusians ignore the reality of the world commodity markets, starting with their cyclical nature.
Here’s the facts: I’m a farmer. I’ve benefited from the recent increase in ag commodity prices (in my case, hay), but I know that a) it isn’t due to the price of corn going up and b) that it won’t last. Commodity price increases almost never do.
Ag commodity prices, like all commodity prices, run in long, multi-decade cycles, just like gold, oil, coal, silver, etc.
We’re in a worldwide commodity up-cycle right now. The bottom of the last ag commodity cycle was 1986. As any farmer about 1986: that was the year that broke farmers and ranchers from coast to coast, as commodity prices bottomed out from massive over-production coming out of the previous commodity boom cycle in the 70’s.
The next thing these neo-malthusians will be claiming is “ethanol is responsible for the price increase in gold.” Since gold has been going up at the same time as corn, wheat, beans, hay, etc — you’d have every bit as much evidence as you have to claim that wheat is being influenced by corn prices. Go ahead - put a graph of gold prices next to corn prices. Wow, what a coincidence! They’re correlated!
That must mean that corn is causing the increase in gold prices, yes?
Obviously not. Anyone familiar with statistics will say “Correlation does not equal causation.”
The real cause of the spike in wheat prices is this:
1. A drought in Australia caused an estimated 20%+ drop in Australian wheat harvest levels.
2. The Ukraine also had a severe drought - affecting over 60% of the Ukraine’s wheat acreage. The government there put restrictions on wheat exports to prevent cost increases in their bread production, effectively taking the rest of their crop off the world market.
This was the event, BTW, that caused the wheat market to take off, not ethanol. If US ethanol production were the cause of the recent price increase in wheat, the markets would have pushed the price of wheat to these levels based only on the planting intention reports from the USDA last March, not the harvest projections from the US, Canada, Ukraine and Russia.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ6CJPPIzi94&refer=home
Russia also increased the export tariff on wheat this past October.
3. Last issue is the increase in global consumption, driven by strong demand(s) from China and India. Want to see yet another ag commodity going up in price, purely because of Chinese demand?
Wool:
http://www.bloomberg.com/apps/news?pid=20602013&sid=aoDIjVio_OAU&refer=commodity_futures
You can’t blame that on ethanol either, because the sheep industry in the US is basically dead. It was killed by the Australians and the removal of US subsidies for wool and mohair. Wool prices are up pretty nicely this year, after having been in the dumpster for more than 10 years here in Nevada. Thanks to our trade and current account deficits, the Chinese have huge wads of dollars with which to buy ag commodities (as well as oil, coal, etc) on the world markets that they didn’t have previously.
Ethanol has an localized effect on corn prices, but this idiotic chanting that ethanol is responsible for all ag commodity price increases is (again) both stupid and wrong.
I appreciate your thoughtful reply especially revealing your bias. Other ethanol supporters refuse to reveal their biases. You are correct that exaggeration exists on both sides of the biofuels debate. Food prices are affected by a variety of factors. Traditionally weather has been a major influence in food commodity prices. Government interference in commodity markets has long been a factor also. Increasing demand due to advancement of developing countries will become an important factor driving future prices. Establishing the cause for the recent increase in food commodity prices is subject to debate. There are a variety of factors of which ethanol mandates are one part. Markets can have non linear behavior in the short run. One additional factor such as mandates or unexpected weather can cause a sharp change in prices.
I disagree with your assessment that biofuel mandates will not drive up food commodity prices in the long run. Biofuel mandates have the potential to substantially increase food commodity prices. On the other hand, depending on the nature of the future biofuels development, the price increases may not be substantial. I rate the potential for future price increases as high due to the permanent nature of the substantial mandates. We have never relied on agriculture to provide both food and fuel. I think it is terrible policy to impose huge biofuel mandates when the economic consequences of these mandates are unknown.
In my mind, the recent energy bill was just a central plan doomed to failure. The market should determine the proper mix of fuel sources, not politicians. Any industry provided with these levels of mandates and subsidies will become bloated and inefficient. I see the energy bill as permanently shielding the alternative energy market from competition.