By C. LARRY POPE
This has been a cruel season for America's agricultural economy. It was partly unavoidable, as our nation's farmers are being devastated by this summer's brutal and worsening drought. The farm economy has withered along with the crops, and the American consumer, once again, will pay for it with higher food prices.
One of the hardest-hit commodities, corn, plays a critical role in our food chain. This year's crop yield could be the worst in 15 years, and corn prices have already hit record high levels.
But aggravating the problem and adding to the crisis is the U.S. government's Renewable Fuel Standard (RFS), which requires that a certain volume of ethanol (15.2 billion gallons in 2012, mainly derived from corn) be blended into gasoline. This is an arbitrary figure, set irrespective of market supplies, demands or price. It applies to corn that's desperately needed for livestock feed and food for consumers.
The RFS has diverted so much corn as a questionable substitute for gasoline that in the face of this drought-depleted harvest, major food-producing companies such as Smithfield are being forced to seek alternative markets for grain to meet the demands of their livestock and at more affordable prices. Ironically, if the ethanol mandate did not exist, even this year's drought-depleted corn crop would have been more than enough to meet the requirements for livestock feed and food production at decent prices...
Ethanol now consumes more corn than animal agriculture does. According to a study recently released by the Center for Global Food Issues, ethanol production currently uses more than 40% of the U.S. annual corn supply, representing a 300% increase from 2005 to 2011. The resulting impact on corn prices is stunning: Per-bushel prices jumped to a record high last week of $8.24 from $2 in 2005, the year the ethanol mandate was put in place.
The U.S. Department of Agriculture also reported that a record-low 26% of the corn crop is rated to be in "good" or "excellent" condition—down 40% from a year ago. And 45% of the corn crop is in "poor" or "very poor" condition. The USDA has declared nearly 1,400 counties in 31 states disaster areas as a result of the drought.
The current corn-price crisis demands that lawmakers and regulators immediately consider how to amend the RFS to help ease the pressure it is placing on the supply of corn for food, and to help reduce the cost to consumers.
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