Demand for ethanol bumps up the price of corn, an ethanol
ingredient, creating a ripple effect straight to local consumers'
wallets.
No, it's not your imagination. Your grocery bill is likely higher
than it was a year ago, especially if you buy lots of processed
foods, tortillas, corn chips, meat and poultry.
All of these foods have one ingredient in common: corn.
Corn is in the feed of livestock and poultry. Likewise, processed
foods contain ingredients such as corn syrup or cornstarch. And the
price of corn is rising, since it's a key ingredient of ethanol --
the alternative fuel with the most buzz lately.
Just how expensive is corn? A year ago, a bushel of corn was
priced at about $2 on the Chicago Board of Trade. Tuesday, it was
priced at about $4.11 a bushel.
"It's huge," says Bob Frye, a commodity broker at Access Futures
Options Trading Co. in Woodlake. "It's a perception out there that
the ethanol bandwagon is growing, and people are jumping on that
bandwagon because they think there's going to be an extra-high need
for corn later on."
Government policies and subsidies have helped turn domestic
ethanol production into big business. The 2005 energy bill forces
oil refiners to buy at least 7.5 billion gallons of ethanol by 2012.
The federal government offers a rebate to sweeten the deal: For
every gallon of ethanol a refiner blends into gasoline, it receives
51 cents on the federal fuel tax.
In addition, most imports of ethanol are subject to a tariff of
54 cents per gallon. It's not high enough to prevent other countries
from sending fuel to the United States, but it's definitely a
measure designed to boost U.S. ethanol creation.
President Bush's State of the Union address in late January
fueled the industry. He called for 35 billion gallons of alternative
fuels by 2017. (Ethanol made from corn and other materials,
biodiesel and methanol are all part of the mix.)
Last week's release of the January consumer price index reflected
ethanol's impact on food. Food prices were up 0.7%, the highest jump
since April 2005.
Businesses in the central San Joaquin Valley and elsewhere have
felt the effect. Because of ethanol and frigid Midwest weather
that's hurting cattle, Gus' Food Locker in Madera is paying its
wholesalers about 20 to 30 cents more per pound of beef and pork,
says Derek Sambueso, a meat manager at Gus'. As a result, Gus' has
increased its retail prices by about 10 to 15 cents a pound, he
says.
Poultry farmers haven't escaped the rising costs, either. Pitman
Farms of
Fresno, known for its organic, free-range and heritage
turkeys under the Mary's brand, is facing much higher feed
expenditures than last year.
Those costs still are rising, says Rick Pitman, who expects corn
prices to hit $5 to $5.50 a bushel. In response, Pitman has tried to
stock up on feed. He's also reopening Western Grain and Milling, the
feed mill started by his father.
"Producers are doing whatever they can to keep their costs down,"
Pitman says. "Having our own feed mill will help us to lower our
feed costs a little bit. ... We're still buying from our regular
suppliers."
Pitman expects to increase prices for his products by about seven
to 10 cents a pound. The prices could rise by an additional five
cents a pound, depending on the cost of feed later this year, he
says.
The price increases in foods containing corn syrup are
comparable. Saroni Total Food Ingredients, a distributor in
Oakland that sells products to some Valley companies, has
seen prices for corn syrup rise about 15% since October, company
president Dan Brooking says. Saroni is passing on part of that cost
to its customers.
"We're absorbing a little bit," he says.
Otherwise, the rise in corn prices hasn't hurt his business. "The
thing about food is that people have to eat," Brooking says.
Rising prices for corn syrup have prompted Fresno-headquartered
Producers Dairy to increase prices for its fruit drinks and punches,
says Richie Shehadey, Producers' director of sales and marketing.
"Everything is passed along to the consumer," he says. Depending
on the product, prices have risen by 5% to 10%.
Of course, products made of corn are feeling a similar hit. La
Tapatia Tortilleria at
Belmont and Harrison avenues has raised prices by 5% to 10%
since the beginning of the year, partly because of the rising cost
of corn, says John Hansen, La Tapatia's senior vice president.
The company makes corn and flour tortillas and tor- tilla chips,
as well as wraps.
Hansen is watching supply and demand for wheat and soybeans as
well as corn. He's waiting for the next Prospective Plantings
reports, which will be released by the U.S. Department of
Agriculture at the end of March. The reports will reveal how much
corn farmers intend to plant this growing season, a figure that will
influence the price per bushel.
An increase in the supply of corn could drop prices, Hansen says.
But if farmers pull out soybeans and wheat to plant more corn, that
would still affect La Tapatia.
"We buy soybean oil for tortilla chips, and wheat for wheat flour
tortillas," Hansen says.
Prices for soybeans also are changing, he adds. Soybeans are an
ingredient in biodiesel -- another alternative fuel. "You can't
subsidize ethanol without having an effect on food prices," Hansen
says.
There's no telling when the run-up in corn prices will end, but
Frye of Access Futures thinks that it might top off at $4.50 a
bushel.
Corn prices now are like "the dot-com mania," Frye says. "Part of
this is public perception."
