Experts don't see return to cheap food soon
Economists, farmers and food industry experts told a Senate Agriculture Committee hearing in Omaha Monday that demand for corn and soybeans for biofuels will continue to drive food costs higher, even though rising energy costs in general are the main cause of food price inflation.
"Up until the last two years, energy prices affected agriculture primarily by influencing production costs: Particularly fertilizer and diesel prices. But now that we have linked energy and commodity markets, both production costs and crop demand are influenced by energy prices," said Bruce Babcock, an agricultural economist who heads the Center for Agricultural and Rural Development at Iowa State University.
Babcock told the field hearing run by Committee Chairman Tom Harkin (D-IA) and Senator Ben Nelson (D-NE) that increasing ethanol mandates mean corn farmers will have built-in demand for between 25% and 30% of their crops. He expects corn prices to stay above $3.50 to $4 a bushel for the next five years.
If crude oil prices stay above $100 a barrel and good weather drives corn prices below $4 a bushel, Babcock expects ethanol to look so profitable that more investment in ethanol could occur, even beyond government mandates.
Babcock sees livestock prices increasing over the next your or two to cover these higher feed costs, mainly because of a likely cutback in production in the U.S. and in countries exporting to the U.S.
Dave Moody, president of the Iowa Pork Producers Association, said that even with record cattle and hog prices this summer, some livestock production businesses have not been profitable.
Moody said that hog producers may benefit from a new technology, corn fractionation that separates oil and the germ before dry mill ethanol production. That could improve the feed quality of ethanol co-products, eventually benefiting producers. Moody called for more federal support for research on that technology.
Jim Jenkins, a cattle rancher and restaurant owner who is chairman of the Nebraska Ethanol Board, acknowledged the hard feelings among crop and livestock producers over the expansion of ethanol.
"There's lot of emotion. People have lined up and drawn a line in the sand," he said.
Jenkins said the marketplace should be allowed to adjust to higher grain prices and he questioned whether a return to federally subsidized cheap food is really better than continuing economic incentives for biofuel production
"With $2 grain, we faced an overfattening of cattle," Jenkins said. Restaurant operators have long complained of having to trim excess fat from beef, he said.
Jenkins cited university researchers who argue that corn use in feeding cattle could be cut up to 40%.
And, he said, there is ample forage to replace some of that corn with better pasture and rangeland management. Nebraska is about 50% grass, he said, yet less than a tenth of the state's ranches are fully using more intensive grazing methods.