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DAVID KRUSE

By Staff | May 30, 2014

The Chicago Tribune published an article on May 9 that caught the attention of several Commstock Report subscribers who made sure that I saw it.

It was entitled “How ethanol boosts the price of your hamburger.”

I have never heard Chicago described as a village, but the article was definitely written by the village idiot.

The article is purported to be, as the headline suggests, the documentation as to why ethanol is to blame for higher meat prices.

It mentions the current drought in California, but not the drought in the Midwest going on the past three years, where corn and livestock feed is grown, and where cow herds have been liquidated as drought-ravished crops and pastures.

It mentions export demand, but praises that as a good thing despite the fact that corn that leaves the country reduces the supply available for feed.

The article was the typical hack job in that it doesn’t mention the existence of distiller’s dried grain, the by-product from ethanol production which recently became the second largest supply feedstuff in the U.S.

These articles never do because they don’t make sense if DDG is included in their premises. I guess that it’s just too complicated for them to understand that the ethanol process returns a third of the corn used by weight and 40 percent of the corn used by feed value to livestock producers in the form of DDG.

When a bushel of corn is exported, 100 percent of that corn is gone forever as a source of livestock feed in the U.S.

When corn is used to make ethanol just 60 percent of the 5 billion bushels going to the ethanol process becomes ethanol.

So when the article says that 40 percent of the U.S. corn crop was diverted into ethanol production, that is inaccurate. Forty percent of that 40 percent becomes DDG and corn oil, so by my math 24 percent of the corn crop goes to ethanol production. Twenty-four percent versus 40 percent is a material difference.

Most of that difference is turned into feed as DDG.

The use of the word “diverted” is meant to hold special meaning in that it assumes that the corn would be there for other uses were it not for ethanol demand.

That assumption is wrong. Were it not for ethanol demand, it would not be produced. It would not be there because there would be no demand for the corn and therefore the price of corn would be too low for farmers to have the economic incentive to produce it.

Farmers expanded corn production to fill all needs for corn end-users.

We have never run out of corn, and when the drought relented in 2013 which was the primary factor that corn prices had increased, the supply of corn pushed corn prices significantly lower from recent historical highs.

The Tribune said the corn going into ethanol reduces the supply available to make sweeteners, breakfast cereal and edible oils.

City folks think that the same corn that goes to feed livestock is used for cornflakes. Again, they do not know what they don’t know.

The kind of yellow corn cattle and hogs eat is not the same kind used in human food products.

It is not the white corn used in chips or the sweet corn that goes in a can or the freezer.

Major historical drought has been the primary reason that ranchers have trimmed herds.

Ranchers did not liquidate cow herds because of high corn prices or a shortage of corn as the article suggests.

Ranchers have been enjoying one of the most profitable periods in cow economic history for several years.

Corn prices did not undermine cow-calf profitability.

When the drought relents further, the supply of cows going to slaughter that impacts the hamburger supply most, will adjust accordingly.

The global supply of lean beef is very short as well which means the potential to boost imports of grinding beef is limited.

Contrarily, U.S. exports of high quality beef have grown through the entire period that the Tribune suggests that feed costs reduced production.

The Tribune suggests the Environmental Protection Agency took action to reduce ethanol produced and therefore, indirectly, the corn required to meet the Renewable Fuel Standard by proposing lower volumetric targets for ethanol production.

That is entirely false. If they were looking at the corn supply or corn price they would have certainly reduced the volumetric target long ago.

That was not part of EPA’s matrix. They reduced it because of concern that the lack of fuel distribution infrastructure limited market access to the level of E-10, because the petroleum industry is balking at adding E-15 or blender’s pumps.

The EPA is likely to re-evaluate that decision with higher volumetric targets than were previously proposed when set next month.

Ethanol made from corn stalks and other waste cellulose materials which constitute most all the remaining quota in the RFS has no bearing on beef production or the price of hamburger whatsoever.

Contrary to what the Tribune contends, the RFS has been one of the most successful government programs in recent history.

It has reduced the cost of fuel to consumers while reducing dependence on foreign oil.

Hamburger prices will likely go higher, but not for any of the reasons the Chicago Tribune contends in this article.

Of course the point of the article never was to explain why hamburger prices were going up.

Was it?

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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