Adding Up Corn Prices
Food vs. Fuel was a big headline this past spring and summer as corn, soybean and wheat prices escalated to record highs. A variety of sources blamed higher food prices on the increased number of bushels of corn used to produce ethanol. Sources said that the demand for corn used to make ethanol was causing corn prices to increase at an alarming rate. With the increase in corn prices, seemingly due to the demand for ethanol, food companies claimed they had to charge a higher price for their products that were sold to consumers at the retail level.
If the increased production of ethanol was to blame for the increase in corn prices this past summer, why have corn prices fallen 64 percent (from $7.30 a bushel this past July to $2.90 in December)? After all, ethanol production increased from eight billion gallons in 2007 to nine billion gallons in 2008, with an expected increase again in 2009.
The Grocery Manufacturers Association, which represents a number of food wholesalers and retailers, blamed ethanol production for the increase in food costs last summer. This was disturbing to a number of farm commodity organizations, including the Illinois Farm Bureau and Illinois Corn Growers Association, who represent a majority of farmers in the state.
Since corn prices have plummeted 64 percent and petroleum prices have decreased from summer highs of $147 a barrel to around $40 a barrel, shouldn’t those decreases in costs be reflected in lower grocery prices? Are grocery costs coming down?
There are actually numerous cost factors that contribute to retail food prices. According to the United States Department of Agriculture, labor costs account for 38 cents of every dollar a consumer spends on food. Packaging, transportation, energy, advertising and profits account for 24 cents of the consumer dollar. In fact, just 19 cents of every consumer dollar can be attributed to the actual cost of food inputs like corn, soybeans and wheat.
Retail food products such as cereals, snack foods and beverages sweetened with corn sweeteners actually contain very little corn. A bushel of corn weighs 56 pounds; a box of corn flakes weighs 18 ounces. Fifty six pounds, or 896 ounces, divided by 18 ounces equals 50 boxes of corn flakes per bushel. Of course, the entire 18 ounces will not be all corn, and even if it were, the cost of the corn in an 18-ounce box of corn flakes, valued at $3 a bushel, would be just six cents. With the record seven-dollar corn this summer, the cost of the corn in an 18-ounce box of corn flakes was only 14 cents.
Another issue that surfaced in the food vs. fuel debate was the misconception of which corn goes where. By that, I am referring to the fact that the corn you see while driving the thousands of miles here in the Midwest is field corn. Half of this field corn is used to feed livestock, 20 percent is exported to other countries (primarily to feed their livestock) and 25 percent is used for ethanol production. This field corn is not the corn in a can or plastic bag that you purchase in the freezer at the grocery store—that is sweet corn. The acres planted to sweet corn are minuscule compared to the acres planted to field corn. In our area, approximately 800 acres of sweet corn were grown around Chillicothe and Henry. This would have been on irrigated sandy soil along the Illinois River. Peoria County’s field corn production this year was approximately 120,000 acres.
As a side note, you can eat field corn just like sweet corn, but you had better harvest it before the kernels ripen and get hard. You will notice a big difference in taste—there is a reason the “sweet” is in the name “sweet corn.” iBi