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Green & Growing- Corn pricesBy Randy Buhler CSU Cooperative Extension Agent, Logan County, Agronomy Colorado A recent newspaper column quoting me as stating, "corn ethanol causes increased food prices" was just a lot of baloney. Columns from the Colorado Commissioner of Agriculture and from the National Corn Growers Association attempted to explain why corn ethanol was not responsible for increased food prices. All of our attempts missed the mark, so this column is offered as a response that details how corn ethanol and food corn are linked. Corn has several types used for their specific properties. Two types of corn that are directly consumed as food are popcorn and sweet corn. These corn types are priced on their own market. Flour corn comes in white, yellow, red, and blue colors as a food corn type used for flour, meal, grits, and hominy. Breakfast cereals, quick breads, chips, and tortillas come from flour type corn. Food grade corn is mostly grown under contract and is priced at a premium to No. 2 yellow corn. The No. 2 yellow corn price is a proxy for a base commodity price. Food grade corn is free of aflatoxin and other contaminants. Food grade corn is identity preserved and requires special handling. It is not commingled with other corn production. Yellow dent corn provides feed for animals, fuel for stoves, feedstock for ethanol, and a multitude of refined corn products. Yellow dent corn is the primary type produced in the United States. Ethanol is an oxygenate additive for gasoline. Ethanol replaces the MTBE (methyl tert butyl ether) that was previously used to meet air pollution control requirements. MTBE is derived from petroleum refining. Fuel consumption in areas that must meet the pollution mitigation requirements creates increased demand for ethanol. National energy policy that pushes ethanol mixtures higher than required for pollution mitigation adds an additional demand for ethanol production. Corn refining is a two-step process that involves wet milling and further processing of corn. Shelled yellow dent corn is cleaned and steeped (softened) in tanks with a water-based solution. The steep water is drawn off and the softened corn is milled. Steep water is used in animal feed and fermentation of other products. During milling, the germ is broken loose and mechanical and solvent processes extract corn oil from the germ. The remainder of the corn kernels leaves the germ separator in a water suspension. The slurry is ground to release starch and gluten from the kernel fiber. The starch and gluten slurry is piped to starch separators. The fiber and germ residue are sold as animal feed. Gluten (corn protein) is removed from the starch in a centrifuge. The extracted gluten meal is used as poultry feed, in pet food, and even as a pre-emergent herbicide. The slurry starch is collected and washed producing a high-quality starch. This clean starch is then dried and marketed, modified into specialty starches, or converted into corn syrups and other sweeteners. As a multitude of processed food products, yellow dent corn can be found in many of our off-the-shelf foods. It is no longer a commodity grain, but an industrial process or value-added product. We have a futures market that affects the price of corn. The futures market handles many more millions of bushels of corn in transactions than we have corn in physical existence. The operation of the market anticipates the supply and demand for corn up to a year in advance. Last winter the market perceived a shortage of supply because of increased demand. Market traders bid up the price for corn. Farmers responded to the increased corn price by planting more corn. This increased supply has resulted in a decrease in the market price of corn. When prices went up the price for your box of corn flakes went up, supposedly due to the increased price of corn. Has the price of your box of corn flakes gone back down with the decrease in corn prices? Guess how many refined corn products are in your baloney. The price of corn is determined by the futures market, supply and demand balance, and production success. Ethanol demand increases our domestic consumption of corn and supports higher corn prices. The supply and price of petroleum fuel and the environmental protection laws determine the demand for ethanol. Petroleum prices support ethanol prices. So, when you hear that ethanol price is driving up food prices, ask the source for the data to back up their pronouncement. Repetition of sound bites, especially in the mainstream media, does not make it true. In this case, the ethanol price is determined by factors other than the price of corn. Petroleum cost is the driving factor for increased food prices. The price of corn will have an effect on supply of ethanol, if the price for ethanol drops below the price breakeven determined by the price of corn. Date: 10/3/07
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