Friday, November 16, 2007

Higher Turkey Prices, Thanks To Ethanol

From this news article "Thanksgiving May Cost You":

If you're planning a major feast this Thanksgiving, it might be a good idea to budget a few extra dollars to make sure you can get the guest of honor to the table. The rising cost of oil and other utilities, combined with an explosion in the cost of corn feed, has increased the cost of raising a turkey by as much 35% and costing the industry more than a half-billion dollars.

Nationally, increases in feed costs are expected to cost farmers more than $576 million, said Sherrie Rosenblatt, a spokeswoman for the Washington, D.C.-based National Turkey Federation.

As an increasing number of farms devote their corn crops to the production of ethanol rather than animal feed, feed costs have exploded, from less than $1 per bushel last year to more than $4 today.

"Turkey feed is about one-third of the cost of raising a turkey," she said. "We feed turkeys a combination of corn and soybean."

With many growers switching to the more profitable corn for ethanol, turkey farmers are trying to cope with a one-two punch of increasing corn prices and decreased soybean production.

According to some estimates, the higher prices translate to about an 8 cent increase per pound, per turkey, or about a 35 percent increase in the cost of raising just one bird.

Solution: To protect against rising food prices, you could have bought some shares of ADM (a major ethanol producer) a few years ago. As the chart below shows, ADM stock (blue line) has risen almost 60% over the the last two years, about 3X higher than the 20% increase in the S&P500 (red line).


At 11/16/2007 3:17 PM, Anonymous Anonymous said...

It's enough to drive one to single malt ethanol.

At 11/16/2007 4:01 PM, Anonymous Anonymous said...

That's what happens when you use a food crop to produce a fuel. The Wall St. Journal recently ran an article about hog farmers supplementing corn feed with broken cookies and trail mix.

Economists across the country have been recommending a gas tax to reduce fuel consumption and lower emissions yet politicians give us ethanol subsidies which create hugh distortion in food prices (as well as consuming vast amounts of water for irrigation and processing) or propose changes to CAFE that will take years to lower emissions. Even if the Big 3 eventually design and roll off more fuel efficient models in 3 to 5 year's time, it will take years to completely replace all cars on the road.

On the bright side, perhaps, we will all be travelling by canoe by then due to rising sealevels. I'll have to start practising my J stroke.

At 11/16/2007 5:12 PM, Blogger juandos said...

"Economists across the country have been recommending a gas tax to reduce fuel consumption and lower emissions"...

Hmmm, maybe we can still use biofuels but instead of wasting good corn let's use these psuedo economists recomending tax increases instead...

At 11/16/2007 6:40 PM, Anonymous Anonymous said...

If your Magic 8 Ball always answers, "More taxes" to any question you ask of it then it's time to toss it and get a new one.

At 11/16/2007 10:11 PM, Anonymous Anonymous said...

Taxes are not always the answer just as new regulations are not always the answer. Global warming gases are an externality that is not addressed by the market. It therefore must be addressed by society.

If one is trying to accomplish a particular goal which requires a substantial change in the way we live (ie. changing to a low carbon economy), it is necessary to use incentives to achieve this end.

Several approaches have been proposed:

1. massive subsidies for ethanol and bio-fuels (resulting in high food costs without any material reduction in emissions)
2. requiring a percentage of energy from renewables (but notably not hydro-electric power) requiring massive capital investment by utility companies (passed on to consumers as higher electricity prices)
3. Raising CAFE standards for fuel economy (with new models taking years to come to market and years to replace all existing cars in the US)
4. Implement a gas tax similar to the taxes in Europe

If the objective is to lower emissions asap, obviously the fourth option is the one that achieves the goal quickest. Economics involves trade-offs. No solution is perfect but one looks for the most practical way of achieving the goal using the method that causes the least disruption.

At 11/18/2007 6:54 AM, Blogger juandos said...

"Global warming gases are an externality that is not addressed by the market. It therefore must be addressed by society."...

So water vapor, human, mammalian, and avian respiration plus vulcanism needs to be addressed by society, eh?

Good luck with that...:-)


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