Environmental Engineering Reference
In-Depth Information
ethanol production, seed, and industrial uses. Sweet corn, both white and yellow,
is usually consumed as immature whole-kernel corn by humans and also as an
ingredient in other corn-based foods, but it makes up only about 1% of the total
U.S. corn production.
Because U.S. ethanol production uses field corn, the most direct impact of
increased ethanol production should be on field corn prices and on the price of
food products based on field corn. However, even for those products heavily based
on field corn, the effect of rising corn prices is dampened by other market factors.
For example, an 18-ounce box of corn flakes contains about 12.9 ounces of milled
field corn. When field corn is priced at $2.28 per bushel (the 20-year average),
the actual value of corn represented in the box of corn flakes is about 3.3 cents (1
bushel = 56 pounds). (The remainder of the price represents packaging, process-
ing, advertising, transportation, and other costs.) At $3.40 per bushel, the average
price in 2007, the value is about 4.9 cents. The 49% increase in corn prices would
be expected to raise the price of a box of corn flakes by about 1.6 cents, or 0.5%,
assuming no other cost increases.
In the 1980s, Coca-Cola made the shift from sugar to corn syrup in most of its
U.S.-produced soda, and many other beverage makers followed suit. Currently, about
4.1% of U.S.-produced corn is made into high-fructose corn syrup. A 2-liter bottle
of soda contains about 15 ounces of corn in the form of high-fructose corn syrup.
At $3.40 per bushel, the actual value of corn represented is 5.7 cents, compared with
3.8 cents when corn is priced at $2.28 per bushel. Assuming no other cost increases,
the higher corn price in 2007 would be expected to raise soda prices by 1.9 cents per
2-liter bottle, or 1%. These are notable changes in terms of price measure and infla-
tion, but relatively minor changes in the average household budget.
In addition to the impact on corn flakes and soda beverage prices, livestock prices
are also impacted. This stands to reason when you consider that livestock rations
traditionally contain a large amount of corn; thus, a bigger impact would be expected
in meat and poultry prices due to higher feed costs than in other food products.
Currently, 55% of corn produced in the United States is used as animal feed for live-
stock and poultry. However, estimating the actual corn used as feed to produce retail
meat is a complicated calculation. Livestock producers have many options when
deciding how much corn to include in a feed ration. For example, at one extreme,
grass-fed cattle consume no corn, while other cattle may have a diet consisting pri-
marily of corn. For hog and poultry producers, ration variations may be less extreme
but can still vary quite a bit. To estimate the impact of higher corn prices on retail
meat prices, it is necessary to make a series of assumptions about feeding practices
and grain conversion rates from animal to final retail meat products. To avoid down-
playing potential impacts, this analysis uses upper-bound conversion estimates of
7 pounds of corn to produce 1 pound of beef, 6.5 pounds of corn to produce 1 pound
of pork, and 2.6 pounds of corn to produce 1 pound of chicken.
Using these ratios and data from the Bureau of Labor Statistics, a simple pass-
through model provides estimates of the expected increase in meat prices given the
higher corn prices. The logic of this model is illustrated by an example using chicken
prices. Over the past 20 years, the average price of a bushel of corn in the United
States has been $2.28, implying that a pound of chicken at the retail level uses 8 cents
