(Posted Wed. Aug 29th, 2012)
By Rick Tolman, NCGA Chief Executive Officer
The 19th Century British Prime Minister Benjamin Disraeli has been credited with pointing out that there are three kinds of lies: lies, damned lies, and statistics. While no one knows for sure whether he really said this, what we do know for sure is that we are experiencing a devastating and widespread drought in the United States that has decimated our corn and soybean crops and ravaged our hay and pasture lands across the Midwest.
It is easily the worst drought in our lifetimes, and many will suffer because of it. In particular, the livestock industry is being hard hit and with high feed prices and short supplies.
We also know that it is a time for agriculture to pull together and seek realistic solutions. The national media does not help when they continue to sensationalize the issue and report misinformation. Here are few examples where the national media needs to do a little homework and get the story straight rather than repeat what someone before them misreported.
- 40 percent of our corn is used for ethanol. This simply is not true. This is a misconception that comes from the way USDA tracks and publishes their statistics. Forty percent of our corn is processed for ethanol, but a third of that comes back out of the ethanol process and goes to livestock production in the form of the corn fiber and protein that is not used in the ethanol production process. This byproduct is called distillers grains and is a widely used, highly prized livestock feed. In reality, last year 28 percent of the corn we produced was used for ethanol.
- More corn is now used for ethanol than is used for livestock feed. Again, not true. See above. When the distillers grain is accounted for, corn consumed by livestock still exceeds corn consumed by ethanol. 43 percent of our corn goes to livestock feed and 28 percent of our corn goes for ethanol. Frankly when you look at our entire corn crop and how it ultimately is used, approximately 52 percent of the total U.S corn supply is consumed by livestock, because 80 percent of what we export is consumed by livestock.
- $8 corn is causing massive food price increases. Not yet. $8 corn is a market-clearing price. Very little corn has traded, or is trading, at $8. Ask any group of corn producers to raise their hands if they have sold much $8 corn and you will get few hands raised. Instead, ask how many have sold $5 or $6 corn and almost all will sheepishly raise a hand. Why? Most have agreed earlier in the year to sell their corn at a set price, and up until June of this year, we expected prices to be declining because of an anticipated very large crop. Food manufacturers who raise prices now and blame $8 corn are simply being opportunistic. It is too early in the cycle for $8 corn to have had impact on food prices. Next year, yes; and for livestock producers, yes. But remember that livestock producers are currently in a liquidation phase and so in the short-run, meat prices should be coming down. Also, recall that at $4 per bushel, there is 6 cents’ worth of corn in a box of corn flakes. At $8 corn, there is 12 cents. Farmers, as USDA research indicates, are only getting 14 cents out of each dollar consumers spend on food. Don’t blame them for higher food prices.
- Without ethanol, we would have 4 billion more bushels of corn for feed and prices would be a lot lower. False. Without ethanol, we would not have planted 96 million acres of corn this year and there would not be the extra 4 billion bushels of corn available. About 11 million acres of corn would probably not have been planted without the RFS. Believe it or not, farmers are rational economic beings. They respond to market signals. Over the past five years, the market has rewarded them for increasing their corn production and they have invested in better seed technology, larger equipment, more grain storage and so on, and the result has been more productivity. The entire ag sector – including the food and livestock industries—has benefitted, and as a result that extra 3 billion to 4 billion bushels were produced. Without the ethanol market, there would not have been the demand signals and economic rewards and incentives to invest in productivity, and it would not have been produced. The drought would have been the same on fewer corn acres and with less productivity, the drought would have had the same impact on prices and feed availability – or worse. On fewer acres, we would probably have about 2 billion fewer bushels than the current USDA estimate for this year.
- Higher corn prices are starving poor people around the world. Wrong yet again! Just the opposite is true. There is more corn available in the rest of the world than there has been in many years. This is because higher prices worldwide have stimulated more grain production in countries that could not afford to produce when prices were low. Much of the poor in the world are rural residents. They are benefiting from higher prices for the products they produce and are investing in new technology because they are making money. Ethanol has driven this boom and benefited grain producers in Brazil, Argentina, India, The Philippines, Thailand, South Africa, Zimbabwe and so on. The rising tide has raised many boats. In fact, the United States may even import corn from Brazil this year. This is a natural consequence of the market and economics working.
We empathize with those who are victims of this devastating drought. Corn producers who do not raise a crop do not benefit from higher prices. They are victims as well. Corn producers know that $8 corn is not sustainable and serves to destroy the demand that they have long worked to help develop. Much investment by the U.S. corn sector has gone into supporting and promoting the U.S. livestock industry. They are indeed our best customers, and indeed many of our growers raise livestock and are hit by higher prices and reduced feed availability. We feel their pain.
In turn, we feel the pain of the ethanol industry. More than 20 ethanol plants have had to shut down or significantly cut back in response to high corn prices. And the losses in the export market due to current high prices will take years to regain.
We need to close ranks in agriculture and work to dig out of this hole. We need to insist that the right messages and correct information is being communicated and hold the national news media to a higher standard of accuracy as they describe our industry.