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Chebanse, IL..... | Food Prices Talking Points
March 14, 2008
- Blaming ethanol use for food inflation is wrong for three reasons:
- The price of meat at the grocery store is not determined simply by adding feed costs to an animal. Farmers are price takers. Higher feed costs may simply stop at the farm gate in the former of lower margins for the farmer.
- The marketing bill includes the cost of labor, transportation, energy, packaging, profits, advertising, rent, depreciation, repairs, interest and other costs not attributable to commodity prices. The farmer’s share of the marketing bill is 19 cents for every dollar spent on food. Non-farm labor costs account for 40 cents on average.
- In food products that contain corn – including corn fed to livestock – the price of corn is a fraction of the overall consumer price. The more processing involved in the product, the less corn contributes to the overall cost.
- Take milk for example: A Holstein cow that produce 60 pounds of milk per day eats the equivalent of 12.4 pounds of ground corn and silage per day. So, it takes about 1.78 pounds of corn to produce a single gallon of milk. At today’s corn prices of roughly $5 per bushel, the value of corn in a gallon of milk is 16 cents. (Source Illinois Farm Bureau and U of I, Aug. 2007)
- There are other examples (Source: USDA, ERS, Mar. 2008)
- At $5 corn, the farm value of corn in a pound of beef is 63 cents.
- At $5 corn, the farm value of corn in a pound of pork is 58 cents.
- At $5 corn, the farm value of corn in a pound of chicken breasts is 23 cents.
- In 2005, the transportation and energy portion of the food marketing bill was about 8.5 percent. However, those costs have increased considerably as the price of oil has climbed from about $60 per barrel in 2005 to more than $100 per barrel today – covering the same period as increased corn prices.
- Historically food prices have surged during times of higher crude oil prices. Research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices As a result a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices. (Source: Reed, et al, USDA 1997)
- Have corn prices shown a strong relationship with consumer prices in the past? The answer is no. Historically, there has been little relationship between corn prices and consumer prices. Economics studies over the past 20 years show the price of corn is a statistically insignificant variable in explaining consumer food prices. (Informa Economics, Dec. 2007)
- With the weak dollar and rising incomes overseas, we are in a time of incredible international demand for food – not just for feed grains and oilseeds but for meat, milk and eggs.
- In 1950, 21 percent of an American’s disposable income was spent on food. Today, it’s a shade under 10 percent, with an increasing share of food expenditures away from home.
- USDA projects the Consumer Price Index (CPI) for all food is forecast to increase 3.0 to 4.0 percent in 2008, as retailers continue to pass on higher commodity and energy costs to consumers in the form of higher retail prices. The CPI for food increased 4.0 percent in 2007, the highest annual increase since 1990. Food-at-home prices, led by eggs, dairy, and poultry prices, increased 4.2 percent, while food-away-from-home prices were up 3.6 percent in 2007.
From the Bureau of Labor Statistics (February 2008 Midwest CPI Report; Released Mar. 14, 2008)
- Energy prices, which include prices for motor and household fuels, were up 0.5 percent in February following a 1.3 percent increase the prior month. Over the year, energy prices advanced 17.5 percent
- Overall, transportation prices have advanced 9.2 percent since February 2007 led by an over-the-year increase of 31.2 percent in motor fuel costs.
- The food and beverages category had the second greatest impact on the February index, increasing 0.4 percent over the month following an increase of 1.0 percent in January. Higher prices for food at home continued to drive both the monthly and over-the-year increases, rising 0.5 percent in February 2008 and 5.5 percent since February 2007. Prices for food away from home rose 0.2 percent over the month and 3.5 percent over the year.
Value of Corn in a Gallon of Milk
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| (Source: IFB, UI)
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| Assumptions:
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| Holstein Cow, producing 60# milk/day
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| Consuming 12 pounds of ground corn/day
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| Consuming 40 pounds of corn silage/day (0.4 pounds of corn/day)
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| Total daily corn consumption = 12.4 pounds/day
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| 1.78 pounds of corn needed to produce 1 gallon of milk
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| Price of Corn
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| Value of corn
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| per bushel
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| in 1 gallon of milk
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| $ 2.00
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| $ 0.06
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| $ 2.50
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| $ 0.08
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| $ 3.00
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| $ 0.10
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| $ 3.50
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| $ 0.11
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| $ 4.00
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| $ 0.13
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| $ 4.50
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| $ 0.14
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| $ 5.00
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| $ 0.16
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