Global demand, ethanol fuel food-price hikes

MERRILLVILLE, Meat wrapper Marissa Cardoza stocks the cooler Friday, September 23, 2011 at the Merrillville PayLow.

The continued rise in the cost of corn and other commodities on the global market will be serving up higher food prices at the local table.

Consumers will feel the pressure well into next year as processors pass along their higher costs, said Corinne Alexander, a Purdue University agricultural economist.

That doesn't mean, however, that higher grain prices will translate into a banner year for region farmers.

"The weather has wreaked havoc with me this year. I only got half of my corn planted, and half of that, I contracted for less than the market is now," Hebron grain farmer Robert Little said. He said corn is currently $1.70 more per bushel than his contracted amount. "I thought I was being a responsible marketer. I thought I was locking in at a nice price," he said.

Little farms with less than 1,000 acres planted in corn and soybeans.

While analysts recognized supplies were reduced, few predicted the sustained demand for U.S. grain stocks. Strong global demand has driven exports, which means less grain stays in the U.S., Alexander said.

Walt Breitinger, president of commodity brokerage firm Breitinger and Sons LLC in Valparaiso and a Times columnist, agreed.

"The demand from China is way beyond what was anticipated. ... It appears to be enormous," Breitinger said.

He said the improved economy in China, the shift from an agrarian society to industrial, and an increased taste for animal protein such as beef have punched up China's agriculture–related imports and raised prices on the homefront.

However, other countries are not the only drivers of commodity prices, Breitinger said.

"Four rows of every 10 rows of corn are diverted to ethanol production," Breitinger said. While that may change, the analysts he reads "look for the price of corn and beans to go up indefinitely."

Higher commodity prices, though, do not always immediately result in higher food prices, Alexander said. Processors chose to hold the line on increases in 2009 and 2010 when their raw materials cost for corn and beans went up.

"The question is not whether costs at the grocery store will increase -- it's when," Alexander said.

Most of Indiana's corn acreage goes for livestock feed, but some is used for tortilla chips and corn syrup, for example. Soybean oil is in almost all salad dressings, she said.

Mother Nature pushed up pasta prices when 1 million acres of durum wheat -– the main type used in pasta -– wasn't planted due to the flooding Mississippi River. Wheat was damaged by spring rains in the northern states, too.

Don Weiss, president and CEO of WiseWay, grocery company that also runs three PayLow stores, said his company looks to avoid higher prices for its customers.

"We do everything we can to buy at lower costs before the manufacturers increase their prices, and we pass those discounts on to our customers."

While it may not be his best year, many farmers will have a good year in 2011, Little said.

"What consumers don't understand is some years farmers make no money. For six years in the mid-'90s, I made no money. I have a seed business and crop insurance business that sustained me. Farmers need the very good years to make up for the very poor years," Little said.

"I'm not crying, though; I love what I'm doing," he said.

source: nwitimes