Corn as food vs. corn as fuel

Sam Eaton Sep 13, 2006

Corn as food vs. corn as fuel

Sam Eaton Sep 13, 2006


MARK AUSTIN THOMAS: Corn. Is it food or fuel? Maybe both. The Department of Energy wants the nation to be able to produce 30 billion gallons of renewable biofuels by the year 2030. Most of that would come from ethanol. Right now when most of us think of corn we think of it as food. Sam Eaton with the Marketplace Sustainability Desk traveled to Iowa recently. He wanted to see what happens to the economics of corn when demand for food competes with the demand for fuel.

SAM EATON: Drive through central Iowa and the fact that this state is the nation’s top corn producer becomes pretty obvious.

Corn fields stretch to the horizon, broken only by the occasional farm house. But to find evidence of another top national ranking for Iowa you have to look a little closer.

Inside a cluster of white clapboard barns near Ames, Iowa, Dave Moody is raising another product that’s just as important to Iowa’s ag economy: Pigs.

DAVE MOODY: Iowa’s the number one state in pork production in the United States. It’s about a 12 billion dollar business in the state of Iowa just from pork production.

Moody says about a third of Iowa’s corn and soybean crop ends up in the pig trough.

It’s a case of classical economics known as “value added”— taking a relatively cheap product, corn, and turning it into something that fetches far more money in the supermarket like pork chops.

But with demand for corn-based ethanol surging, turning corn into fuel has become much more profitable than using it for food.

MOODY: If we lose a lot of corn to the ethanol it’s definitely going to bring prices up and that’s one of the biggest cost of pork production inputs is the feed ingredients.

Ethanol has already pushed corn futures up by around 11 percent this year.

And some economists predict the price of corn will double over the next few years as more and more ethanol plants come online.

Daniel Basse is president of Ag Resource Corporation in Chicago, which analyzes US grain markets. He says ethanol production now consumes about 15 percent of the nation’s corn crop, up from around three to four percent just five years ago.

DANIEL BASSE: In terms of corn it’s a tremendous demand component that we have not seen in this industry before. It’s a demand shock that is going to ripple through the farm economy and I think for all of us probably raise food prices and food inflationary fears as we go along in time.

Basse says the price of meat in the US could surge 20 to 30 percent.

That has hog farmers like Dave Moody worried about a future where the nation’s thirst for energy goes head-to-head with its demand for food.

The Iowa Corn Growers Association says new higher yielding seeds will make up for any shortfall, but Glen McClelland, president of one of the nation’s top pork producers, M2P2, says that’s optimistic at best, especially since the meat industry operates on such a tight margin.

GLEN MCCLELLAND: There’s a point where not only where we will lose our demand for the product that we do, we will lose our ability to maintain any margin, even if we have demand.

And that point, he says, is something most pork growers won’t know until it’s too late.

In Ames, Iowa, I’m Sam Eaton for Marketplace.

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