When corn senators attack!

Who says there's no chance for bipartisan cooperation in today's ideologically divided Congress? When the issue at hand is the sanctity of ethanol, Republicans and Democrats will hold hands and sing in joyous harmony -- just so long as they happen to represent Midwestern states that grow a lot of corn.

A handful of such senators held a press conference on Thursday to push back against the "ignorant" foes of renewable fuels. The attendees included Sens. Charles Grassley, R-Iowa, Byron Dorgan, D-N.D., John Thune, R-S.D., Ben Nelson, D-Neb., Kit Bond, R-Mo., and Ken Salazar, D-Colo.

Their tone: Aggrieved.

A typical wail from Sen. Nelson:
I'm not sure when it happened or why it happened, but it's incredible to me that someone decided to add ethanol to the members of the axis of evil. We're being blamed for virtually everything today.
Not sure? Not sure?! Of course they're sure -- everyone knows why there's a backlash against biofuels: spiking food prices.

But according to the senators of the corn, biofuels play only a small role in rising food prices. The real villain: oil.

Sen. Bond provided the beef, as it were:
As of late ... some in the big media have feasted on scapegoating ethanol for higher food prices. Before we get carried away, let's consider all the factors.

According to USDA, a box of corn flakes consists of less than a dime's worth of corn and is accountable for less than 5 percent of the resale price. A quarter pound of ground beef contains about a quarter's worth of corn.

Now, today at Gerbes grocery in Columbia, Missouri, a 24-ounce box of corn flakes costs $3.69, which is up more than a dollar. If the corn in the corn flakes increases a nickel, why did the box of corn flakes increase over a dollar? And where did the other 95 cents go?

It is obvious you can't turn a nickel or a dime or even a quarter into a dollar-plus expense. It doesn't add up.

While the amount of corn actually used in food products is minuscule, the amount of petroleum being used is not.

Not only is petroleum used in transportation of these food goods and in the fertilizer that goes into them, but in the packaging and manufacturing, as well.

In fact, USDA reports that 81 percent of the cost of food goes to off-farm costs, such as manufacturing, packaging, distributing and retailing of food products.

The Federal Reserve Bank of Kansas City stated that a 10 percent increase in energy price translates in a short-term food increased price of 5 percent.

Now, in the past 12 months, oil prices have risen 100 percent.
The financial incentive for senators who bleed maize to pump up ethanol is so overwhelming it is almost impossible to take them seriously, but it doesn't seem beyond the bounds of reason to accept that the enormous surge in energy costs might be playing a more significant role in food price inflation than the portion of corn being diverted to ethanol. Even so, How the World Works was surprised to hear that there was only a quarter's worth of corn in a quarter-pound of ground beef. Do those figures hold up?

I did some back of the envelope calculations. The standard ratio of grain-based feed required to produce beef is 8-to-1 -- as in, eight pounds of grain necessary to produce one pound of beef. That translates into two pounds of grain required for every McDonald's quarter-pounder. At the close of trading on Thursday, a bushel of corn sold on the futures market right for just a smidgen under $6. There are about 56 pounds of shelled corn in a bushel, which breaks down to 11 cents a pound. Or, 22 cents for the two pounds of corn required for a quarter-pounder.

I found this exercise revealing. Whenever I contemplate the fact that eight pounds of corn are required for every pound of beef, it sounds like an enormous amount, especially when we consider all the Whoppers, Big Macs and 3-inch-thick porterhouse steaks being chowed down by the beef eaters of the world. But in terms of the relative price the equation is very different. Suddenly corn seems dirt cheap, even at $6 a bushel.

-- Andrew Leonard
07:00 EDT, May 23, 2008
When corn senators attack! - How the World Works - Salon.com