GoodFuels

Grassley slams GMA lobbyist

With all the fervor over biofuels supposedly causing food prices to rise earlier this year, now that gasoline and ethanol prices have plummeted, shouldn’t food prices be moving the same way?

They aren’t. So if there is no tie between ethanol production and food price, then why all the manufactured hysteria back in April? That’s a question many are asking, and Senator Chuck Grassley is among them.

According to Food Price Truth’s blog, Senator Grassley has written to GMA’s president, C. Manly Molpus, demanding that food prices be lowered, in addition to taking offense to comments that one of their lobbyists made (Politico’s blog Shenanigans also has a piece on this).

The lobbyist in question, Scott Faber, publicly commented recently that their “anti-ethanol campaign was launched by GMA to “protect the bottom line of grocery manufacturers and processors.”

Food Price Truth has the letter in its entirety here. It’s nice to know that there are some legislators paying attention out there, and that they’re willing to stick up for the domestic ethanol industry.

Thanks Senator Grassley!  

Image courtesy of ninjapoodles.

UPDATE: The Wall Street Journal published a piece this morning (subscription required) on this very topic. They talk to food companies like Kellog and Kraft to try to get to the bottom of why both companies reported higher than expected quarterly profits, yet still insist on charging high prices for their goods. There has been some pushback from food retailers regarding prices increases. Interesting read.

No Bail Out for Ethanol Plants

Agriculture Secretary Ed Schafer wants to make it perfectly clear that the government is not bailing out ethanol plants that lost money this year by speculating on the commodity markets.

“Some people thought we were taking part of the $700 billion bail out package and giving it to ethanol people,” Schafer said Monday after a meeting with livestock industry groups concerned about comments he made to reporters at the World Food Prize symposium in Des Moines on October 17.

In fact, the livestock industry was up in arms about what they thought was “preferential treatment” for the ethanol plants. “Many of our producer and processor members also took long positions on corn and soybeans and are paying above-market rates right now,” they wrote to the secretary last week. “We in animal agriculture are particularly concerned that you would consider adding one more level of support for the corn-based ethanol industry.”

That was never the case, however. Schafer was referring to USDA’s Business and Industry Loan Guarantee Program which was established in 1974 to help credit-worthy rural businesses by backing loans from private lenders for up to $25 million. On Monday, he explained that program to livestock industry representatives, noting that it was available for their memberships as well. “We assured them that no specific money was being set aside only for the ethanol industry,” Schafer said.

He understands why the livestock industry might have misinterpreted news stories about potential loans to ethanol plants. “It’s one of those situations where everybody is nervous out there, a lot of these folks have seen increased feed costs,” Schafer said. “There’s been a big effort by others to blame ethanol for increased feed and food costs and certainly ethanol production has been a small portion of that but it’s easy to kick around the new kid on the block and so we attack ethanol.”

Listen to Schafer’s comments here:

Bursting Bubbles

Record high prices for commodities this year were a “speculative bubble,” according to an economic analyst quoted in a Reuters report today.

Heavy demand for corn from ethanol makers was seen as a key driver of corn futures to record highs in June, but since then the sharp decline of corn along with other commodities shows that belief was mistaken. Corn is down about 50 percent from its record high in June, even as the amount of the grain used to produce the renewable fuel in the United States remained the same.

The article quotes Stewart Ramsey, senior economist for Global Insight, a Philadelphia-based company that provides economic, financial, and political analysis and forecasting.

Analysts said soaring corn prices were a symptom of big shifts of investment money into corn and other commodities. As big money began shifting out of stocks a few years ago, commodity markets like corn futures began climbing. “There was a speculative bubble in the market and that’s one of the bigget things that came out of the market is just that equity markets weren’t good and for a while the money came into commodities,” Ramsay said.

Now, you would think that would burst the bubble of food manufacturers intent on blaming ethanol for the crisis earlier this year. Not so. Just today Hormel released the 2008 Hormel Hunger Survey that claims, “Most Americans (67 percent) say that food prices have increased a lot since last year, and six out of 10 Americans (61 percent) say that corn-based ethanol is at least partly responsible for higher food prices.”

Hormel reported at 14 percent increase in profits during the second quarter of this year - right at the height of the food price hysteria elevated by the food companies. While the company’s profits did drop in the third quarter, overall profits are expected to be up for 2008. Other food companies - like Kraft, General Mills, and Nestle - are all forecast to make a profit this year. Especially now that they have higher prices for their products and suddenly dramatically lower input costs for energy and raw commodities.