What is in this article?:
- FAPRI baseline report released.
- Among things covered: food prices, acreage predictions, livestock/dairy sectors, crop insurance.
On how ethanol figures into the picture…
“We definitely got questions on ethanol.
“One thing different about this baseline: previously, we started with the assumption that tax credits and tariff policies would continue at current levels forever. That is still a possibility and we’re not trying to predict what course those things will take. However, to be consistent with the way the Congressional Budget Office (CBO) does its baselines -- where it is assumed that when a tax credit or provision expires, it really does so – we followed the same convention.
“That approach had some implications. If those tax credits expire at the end of 2011, we end up with a bit less ethanol being produced and consumed in the next marketing year. It isn’t a sharp drop-off because the RFS2 is in place and requires the use of biofuels. That should help keep pretty significant production happening.
“Current oil prices are also a stimulus for the consumption of biofuels. And that’s almost regardless of the policies we might have.
“Anyway, there is enough change from our current situation to mean a bit of a dip in total consumption of ethanol in 2011/2012. Therefore, there will be less corn being used to make it. That should help moderate corn prices a bit.
“So, while the USDA is showing a small increase in 2011/2012 corn prices, we’re actually showing a small drop.”
What about to how ethanol use/price correlates to food prices?
“I don’t want to say that ethanol doesn’t relate to food prices. The fact that we use so much of our corn crop for ethanol production puts upward pressure on the prices of a lot of major commodities, not just corn.
“Having said that, I want to put things in context. Last summer, we had corn around $3.50 per bushel in the marketplace. Since then, we’ve not had any huge surprises on the ethanol front. It’s not like we changed policy to increase ethanol production, or the like. It’s more ‘okay, we have continued growth in ethanol because of things that were already underway and there are strong oil prices.’
“The shock to the market has come from other things – a smaller-than-anticipated 2010 U.S. corn crop, strong demand from China for soybeans, poor wheat crops in Russia and the Ukraine, and other factors.
“So, yeah, higher food prices are partly due to increased production of biofuels. But is that what has caused food prices to increase more than we expected since last summer? No.”