They've Gone Too Far

I mentioned the other day the negative impact on milk prices driven by the increasing production of ethanol and the resulting demand for corn. The USDA just yesterday raised the wholesale price of milk again. The fact that milk prices are going up maybe didn’t hit close enough to home for some you.

How would you feel if you knew that not only is milk for the morning cereal going up as a result of the increased demand for corn but the price of beer and tequila as well. That’s right party animals according to the Financial Times the strong demand for biofuel feed stocks such as corn, soybeans, and oilseed rape (canola) is encouraging farmers to plant these crops instead of barley, driving up its price. What’s the number one ingredient in beer? You got it…Barley.

Futures prices for European malting barley have risen 85 percent to more than €230 ($320) a ton since last May. Barley and hops account for about 7 percent to 8 percent of the cost of brewing beer. Meanwhile, barley production here in the U.S. fell to 180 million bushels in 2006, the lowest level since 1936. Less land is being used for growing barley only about 2.95 million acres in 2006 where dedicated to barley which is the lowest since records began in 1866.

The rise in barley prices has also been driven by the drought in Australian which reduced the crop by two-thirds. Couple that with the heavy rains in Europe last summer which also reduced the quality and yield of the harvest there. Overall, global production of barley was down 10 percent from 2005. In the U.S., land that was cultivated for growing barley has been given over to corn because of the ethanol demand, said Levin Flake, a grains trade analyst at the U.S. department of agriculture.

The U.S., which in the 1980s was a leading exporter of barley, is now a net importer as barley acreage has shrunk from more than 13m acres in 1985 to 4m this year.

That’s only the barley and beer side of the party equation. About a quarter of Mexican farmers who now grow agave, which is used in the production of tequila, are expected to burn their fields to make way for corn, as prices have nearly doubled from what they were a year ago, due to US ethanol demand. Mexico expects to grow and additional 2.5 million tons of corn this year to take advantage of the 80 percent increase in the price of corn. It is not good news for everyone in Mexico though. Earlier this year corn tortilla prices doubled in some parts of the country, fueling protests and concerns for the 50 million poor Mexicans who depend on tortillas for the majority of their daily caloric intake.

So there you have it. Our leaders have decided that it makes more sense to give Archer-Daniels Midland windfall profits using your taxes while burdening you with higher prices for the necessities of life. The next time you have to dig deeper for your Doritos, beer and tequila supply you’ll know who to thank.