Podcast: Gas prices are up 355%...but what about food?

In this podcast, corn grower Joel High examines the current price of gas - compared to how food prices have changed.

Here's a good line:

In early 2002, the average family paid $102 per week for food, including eating out, and $25 a week for gas. Today we’re spending $124 a week on food and $83 for gas. So in six years food prices have gone up 23 percent but gas has gone up 335 percent. If gas had gone up the same amount as food, we’d only be paying $1.39 a gallon today.

Oil, weak dollar biggest driver in food costs

A Farm Foundation study written by three economists at Purdue University offers an interesting look at the the forces driving food prices. The study, “What’s Driving Food Prices?”, is available here. If you have a few minutes, the audio report by the report's lead author Wally Tyner is a good listen.

Tyner noted that in the 2004 to early 2008 period, oil prices went from $40 to $120 a barrel, while corn went from about $2 to $6 a bushel. He said 75 percent of that increase in corn price was due to high oil prices, while only 25 percent was due to an ethanol subsidy. He noted, though, that the subsidy was important and essential for development of the ethanol industry and that in recent times it has not been as nearly an important driver in corn prices as has oil.

In the report, Tyner said removing the subsidy would not return corn prices to those seen over the past decade - unless crude oil prices fell as well.

Interestingly, the study does not attribute growth in demand for grains by India or China as a driver in higher grain and food prices. Tyner said although demand is increasing in those countries, their production is also growing, as both countries would like to be self sufficient in these areas. He said China and India don't trade ag commodities to any great degree, especially corn or wheat, so their impact is minimal. China's demand for oil, however, does impact the oil markets.

As for the weak dollar, the study said the dollar's decline over the last few years has been an important factor in overall higher prices. The analysis "clearly shows" the historic links and how they have differed from one period to another depending on what else was going on in the global economy, the study said. "Oil, agricultural commodities and most other commodities are priced in U.S. dollars but are purchased in the local currency. So when the U.S. dollar falls as it has over the past six years, there must be a link with commodity prices," it said.

Legislation would help expand fuel choices

Senators Sam Brownback (R-KS), Ken Salazar (D-CO), Joseph Lieberman (I-CT), Susan Collins (R-ME) and John Thune (R-SD) have introduced the Open Fuels Standard Act, which would require that half of all new automobiles sold in the U.S. starting in 2012 to be flex-fuel. This requirement would jump to 80 percent by 2015.

Supporting the legislation is the Set America Free Coalition, which advocates the rapid adoption of flex-fuel vehicles as a way to develop a market for ethanol and other renewable fuels. A bigger market means more use -- and using more renewable fuels means using less imported oil. The often mentioned Robert Zubrin is a member of this coalition.

Although some people may not like the idea of a mandate, in this case the mandate would help bring more fuel choices to consumers - and at a very low cost. It only costs $100 extra to build a flex-fuel car - but as the number of cars that are equipped increases, that cost would likely drop. And just imagine what we'd all gain.

Pickens: We are paying for both sides of the Iraqi war

Oilman and billionaire T. Boone Pickens was in Washington today to testify before a Senate panel on the "Pickens Plan" that aims to increase renewable energy sources and get the U.S. off foreign oil. Although his plan focuses on wind, what really bugs him is imported oil.

But Pickens has talked favorably about ethanol in the past. This article, however, notes that Pickens told the panel today that as long as it gets us away from foreign oil, he's for just about anything -- and everything that's American. Ethanol fits that perfectly.

What drew interest here, though, is this comment: I am convinced we are paying for both sides of the Iraqi war.

That phrase is similar to those who argue that our more than a billion dollar a day foreign oil habit is, essentially, forcing us to pay for both sides of the war on terror. Robert Zubrin comes to mind, and he is a big believer in ethanol because it can be produced domestically and globally, which will change the dynamics of world energy markets.

EPA puts off decision on RFS waiver request

A Washington, DC-insider put the odds of EPA Administrator Stephen Johnson putting off a decision on whether to grant a 50 percent waiver of the Renewable Fuels Standard at 3 to 1.

It turns out the odds were right on, as Johnson said in a statement today that the agency needs more time to "sufficiently answer the Texas request for a waiver from the Renewable Fuels Standard (RFS)." He said additional time is needed to allow staff "to adequately respond to the public comments and develop a decision document that explains the technical, economic and legal rationale of our decision."

Johnson said EPA received more than 15,000 comments on the issue and that a number of the comments "raised substantive issues and included significant economic analysis. I believe it is very important to take sufficient time to review and understand these comments in order to make an informed decision."

EPA is also required to consult with the Departments of Agriculture and Energy in considering whether to grant or deny the waiver request. He said EPA has begun such consultations.

Although not specified, Johnson also appeared to make a reference to complaints by several Senators that he met privately with Texas Gov. Rick Perry, who filed the waiver request. Johnson said: "The process remains fair and open and no agreements have been made with any party in regard to the substance and timing of the decision on the waiver request. "

Johnson added that he was "confident" he will be able to make a final determination on the waiver request "in early August."

That timing is also interesting, considering USDA's first production report for the new crop is coming out August 12. That report will also include updated planted/harvested acre estimates following USDA's more in-depth survey after flooding earlier this year. How closely could EPA's decision and USDA's crop report be tied together?

Ethanol pipelines back on radar screen

Senators Tom Harkin (D-IA) and Richard Lugar (R-IN) have introduced legislation that would give ethanol pipeline owners the same tax benefits they receive for moving moving petroleum products.

According to this article, a provision in the tax code blocks Publicly Traded Partnerships (PTP) – which build and operate most liquid pipelines – from moving forward with plans for biofuels. By law, PTPs are supposed to earn 90 percent of their income from the exploration, transportation, storage or marketing of depletable natural resources, including oil, gas and coal -- but not renewable fuels.

The Harkin-Lugar bill would change the tax code to state that PTPs can earn “qualified” income from the transport, storage or marketing of any renewable liquid fuel approved by the Environmental Protection Agency.

While most of the country's renewable fuels are produced in the Midwest, the only option to transport such fuels to the coasts is via rail or truck. Pipelines could be another option.

There has been talk of an ethanol pipeline in Nebraska that would move ethanol to a regional terminal, and another that would move ethanol from Iowa to the Northeast. If this legislation would help them along, that may be a good thing.

Crop condition ahead of last year

USDA said today that 75 percent of Nebraska’s corn crop is in good to excellent condition, an increase of 3 percent from two weeks ago and one point ahead of the rating at this time a year ago. That leaves 19 percent of the crop in fair condition and 6 percent rated poor to very poor.

Nationally, 65 percent of the crop is in good to excellent condition, which is ahead of last year’s 62 percent and notable considering the type of weather we saw early in the growing season. Other national numbers include 25 percent in fair condition and 10 percent poor to very poor, compared to 25 percent fair and 13 percent poor to very poor last year

Although in good condition, corn is a bit behind
Only 43 percent of the Nebraska's crop was silking as of this past week. A year ago, 73 percent of the crop was silking – and the five-year average has 63 percent. That means the crop is only about five days behind the average. A week ago only 13 percent of Nebraska’s crop was in silking stage, so progress has been rapid and will likely continue to be rapid since weather has been favorable in most parts of the state. Nationally, 34 percent of the crop is silking, compared to 72 percent last year and the five-year average of 60 percent.

For details on Nebraska’s crop, click here, or for USDA's report, click here.

What's really 'pumping' up food prices

Billboards are going up in several cities across Texas that encourage people to visit TexasPriceCheck.com to learn the truth about food prices. The opening animation shows an oil derrick smashing a grocery cart.

As the home page says: Someone has made a mess of the truth about food prices by knocking over the facts and spilling false information all over the place. It’s time somebody mopped up.

"Clean up in the reality aisle!"

Although Texas-focused, the site includes a lot of good information, including the farmers share of everyday food items and how oil impacts food prices. The site is courtesy of the Texas Peanut Producers Board, Texas Wheat Producers Board and Texas Corn Producers Board.

Be sure to check it out.

Senators peeved on reported Perry meeting with EPA

A bipartisan group of Senators sent a letter Friday to Environmental Protection Agency administrator Stephen Johnson questioning him about a closed-door meeting he supposedly had with Texas Gov. Rick Perry on July 9.

A story on Brownfield said the meeting was to discuss Perry's request to cut the Renewable Fuels Standard (RFS) by 50%. Reports said Johnson told Perry he'd put off any final decision on Perry's request for the time being.

In the letter sent to Johnson, the Senators said they “expect a fair and open decision-making process on this matter that includes a good-faith consideration of the concerns of all interested parties. We cannot accept and will not tolerate decisions on the RFS that are made behind closed doors and in concert with only the Governor of Texas.”

They also ask for “an immediate meeting with you and your staff that is docketed, or otherwise officially noted” to gather information about the Perry meeting, learn about agreements between EPA and Perry on the waiver request and “for you to assure us that EPA is following the law and the proper decision-making process.”

Senators that signed the letter include Chuck Grassley (R-IA), Ben Nelson (D-NE), Tim Johnson (D-SD), John Thune (R-SD), Kit Bond (R-MO), Claire McCaskill (D-MO), Norm Coleman (R-MN) and Byron Dorgan (D-N.D.).

To view the response by Senator Ben Nelson, click here. To view Grassley’s full news release, and to view a copy of the letter, click here.

OECD report draws incorrect conclusion

The Paris, France-based Organization for Economic Cooperation & Development (OECD) came out with a report this week that suggests current biofuels are expensive, may not reduce greenhouse gasses by a significant amount and probably don’t help improve energy security. The 119-page report is available here (.pdf).

Some thoughts that pop to mind:

• Biofuels today are cheaper to produce than gasoline at current oil prices. They also stimulate rural economies and save billions in farm subsidies.
  
• Biofuels, including ethanol, reduce greenhouse gases by 30 percent or more. (OECD acknowledged this in the report…yet this isn’t enough? Maybe we should just use more oil?)
• Biofuels, including ethanol, are already reducing U.S. petroleum needs by more than 330,000 barrels per day, helping to get us started down the road to a diversified fuel system.
  

OECD’s “model” also noted that a 28 percent decrease in world oil prices would lower grain prices 12 percent. At $6 corn that is 72 cents a bushel. OECD’s model predicts eliminating the current Renewable Fuels Standard would drop prices only 1 percent, or 6 cents. So what OECD is saying, if you believe its model, is that oil prices have a bigger impact on grain prices than the RFS.

How, exactly, then does OECD come to the conclusion that there should be a moratorium on biofuels development? Whose interests would be best served by that?

What OECD and others seem to forget is that you can’t get to advanced – “second generation” – biofuels by dumping the first. They want a magic solution to appear and solve the world's energy problems. But something has to lead the way, to build the infrastructure and prove that it works. Right now in the United States, that is corn ethanol.