Egg Industry - August 2008

What”sbehindthe
feedcostescalation?

By Dr. Simon M. Shane, Editor

The two major components of feed, corn and soybean meal, have demonstrated unprecedented escalation in cost since introduction of the Renewable Fuel Standard (RFS) in 2006. In August two years ago, corn traded at $2.25 per bushel, rising to $3.40 by April 2007. The Energy Independence and Security Act of 2007,

seed and industrial uses with 30 percent diverted to ethanol and the remaining quantity for export and an extremely low carry-over of 673 million bushels.

The USDA projection contained in the World Agriculture Supply and Demand (WASDE) commodity report for June does not take into account the effect of severe flooding in the nation’s heartland that will markedly depress

Sam Bodman, Secretary of Energy, and Ed Schafer, Secretary of Agriculture in response to a series of questions by Sen. Jeff Bingaman, (D-N.M.), Chairman of the Committee on Energy and Natural Resources. A formal response includes the support of the two Secretaries of the policy of the current Administration ( www.usda.gov). They state clearly that “biofuels are already moderating gaso-

➤ The impact of an increase in corn from $3 to $7 per dozen is over 20
cents per dozen, without completely taking into account the parallel
increase in the cost of other grains, DDGS and soybean meal, which are
both directly and indirectly influenced by diversion.

which doubled the ethanol mandate, caused further escalation in price with last month’s Chicago Board of Trade quotation hovering at $7/bushel.

During mid-June, USDA’s Economic Research Service estimated a price range of $5.30 to $6.30 per bushel for corn harvested during 2008-09. This estimate was based on planting 86 million acres and harvesting 92 percent of this area with an average yield of 149 bushels per acre.

USDA further estimated that total supply would amount to 13. 18 billion bushels, including carry-over stocks of 1. 4 billion bushels. Of the total supply, 41 percent was projected for animal feed,

acreage and yields of both corn and soybeans. Reality is represented by the futures market which is pricing corn and soybeans far above the USDA projections.

Industry organizations including the National Chicken Council and more than 20 industry consumer groups have formed a coalition to oppose federal mandates that they maintain contribute to record food price inflation both in the United States and the international markets. The website of the coalition ( www.foodbeforefuel.org) presents economic studies opposing the RFS.

An opposing view is presented by the administration in a written response by

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line prices” and that “biofuels-related feed stock demand plays only a small role in the global food supply and pricing”.

In response to specific questions, the joint USDA/DOE (Department of Energy) document claims that ethanol and biodiesel consumption accounted for approximately 3 to 4 percent of the overall rise in retail food prices during 2007 and 4 to 5 percent of the total increase in all food CPI during the first four months of 2008. It is claimed that factors unrelated to biofuel development are responsible for escalation in cost of corn including the depreciation of the dollar, increasing demand by more affluent consumers in developing countries and recent drought and inclement weather in the Southern Hemisphere.

The two departments claim that biofuel production in the United States was responsible for approximately 10 percent of the increase in the International Monetary Fund Global Foods Commodity Price Index, which is considered by many to be a highly significant rise.