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The Price of Corn
The New York Times (pg. A20)
February 6, 2007

The current price of corn is $3.23 a bushel, which is more than half again what it was a year ago, and beginning to bring to mind the record $5.545 a bushel set in July 1996.

There are many reasons for this price spurt. The ethanol boom has created a sharp new demand for corn. The Department of Agriculture revised its estimate of the 2006 corn harvest downward by some 200 million bushels because of weather and other factors. There is also a smaller corn reserve on hand than usual -- the smallest in a decade -- which parallels shortages around the world.

Add to this the growing weight of commodities funds investing in agricultural markets, and you have daydreams -- or nightmares -- of that $5 mark.

Yet all this has taken place against the backdrop of three record harvests in a row, a sure sign of how strong the ethanol appetite for corn production is turning out to be. It's tempting to assume that the effect of sharply higher prices is confined primarily to the agricultural sector. But where corn is concerned, we are all part of the agricultural sector. The historical cheapness of corn has driven it into nearly every aspect of our economy, in the form, most familiarly, of corn syrup. The low price of corn over the past half- century lies at the very foundation of America's historically (and unrealistically) low food prices.

Gratifying our two major appetites -- cheap food and cheap gas -- used to seem easy because both corn and oil were abundant. Cheap oil helped keep corn prices low because it cost farmers less to run their tractors and combines.

But we are entering a new dynamic now. While there has been talk recently about refining ethanol from sources other than corn, that could take a while. So at the moment what we are trying to do is gratify those appetites from the same resource: agricultural land. No matter how high prices go, what will need to change isn't the amount of corn acreage available or even the size of the enormous harvests we are already getting. What will need to change is the size of our appetites.

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