Ethanol Demand To Drive Milk to $4 A Gallon, With Other Prices To Follow?

Ethanol, the motor fuel alternative to gasoline that has the potential to save Americans a fortune at the pump and reduce our reliance on foreign oil, isn’t as cheap as the strict ethanol versus gasoline price comparison may appear. In fact, it may be more expensive when total costs are calculated, reports the AP and MoneyCentral.

How can this be? Ethanol is made from corn and, of course, the demand for ethanol has increased the demand for corn. The demand for corn has out-stripped farmers’ ability to supply more corn and thus has resulted in increased prices for corn…

(Photo: amyadoyzie)


On June 4, corn sold for $3.77 a bushel. A year ago, the price was just $2.25 a bushel. That’s a 67% jump in price in a year. (The futures markets say prices will stay here, too, with corn for December delivery selling at $3.83 a bushel on June 4.)”

Higher corn prices means higher meat prices as chickens, pigs and cows are fed more expensive corn. Many sweeteners are made with corn as are candies, soups, cake mixes, and baked goods. Even plastic, paper, adhesives and textiles contain portions of corn products. All are either up in price or expected to be.

And, the one-two punch related to the fuel crisis is hitting milk prices especially hard:

Dairy market forecasters are warning that consumers can expect a sharp increase in dairy prices this summer. By June, the milk futures market predicts, the price paid to farmers will have increased 50 percent this year — driven by higher costs of transporting milk to market and increased demand for corn to produce ethanol.

University of Illinois dairy specialist Michael Hutjens forecasts further increases of up to 40 cents a gallon for milk over the next few months. That would drive the cost of a gallon of whole milk around the country to an average of $3.78, based on the USDA’s monthly survey of milk prices in 30 metro areas.

But the impact doesn’t stop there. The increased demand for corn is sending prices up for non-corn products too.

With corn so profitable to plant, farmers have shifted acreage from soybeans, for example, to corn. So it’s not especially surprising that the price of a bushel of soybeans was up 36% as of June 4 from a year earlier.”

And in an irony that is almost too cruel to mention, the race to produce more corn has increased demand for (and increasing U.S. dependence on) fertilizers. Who makes much of the world’s fertilizers? Yep, foreign oil and natural gas producers.

So, what are we to do? In the short run, the only way to decrease the price of gas is to decrease demand — in other words, we need to use less gas. Some ideas for doing this include checking the air in your car tires, adjusting your driving habits just a bit, and biking to work. In the long-term, we need to decrease our dependence on gasoline. But you already knew that.FREE MONEY FINANCE

How ethanol bites you in the wallet [MoneyCentral]
Forget worries about $4 gas … now it’s $4 milk [MSNBC]

RELATED: You Are What You Grow

Comments

Edit Your Comment

  1. hypnotik_jello says:

    This isn’t surprising at all. The only real long term solution is for people to shift their consumption habits and alter their daily routine. Just because ethanol is a “clean” fuel doesn’t mean we can’t change our driving habits to use less fuel.

  2. RonDiaz says:

    I call BS. Sorry but dairy farmers can’t make a living (save California factory farms) with milk prices so low and the US had so much corn for many years it would just sit in piles outside full elevators rotting. I really thing it is all great ly exaggerated. For one thing they get byproducts still when they make ethanol, and another thing we shouldn’t be using corn to sweeten anything, we all know fructose is not so good for us. Bring on the ethanol!

    That said of course we need to reduce demand, but it is unlikely that will happen in my lifetime.

  3. Fuzz says:

    And it is the low-income people who will suffer. They don’t drive, yet they will be the ones hit hardest by increased food costs. Good work guys. Keep trying. I think it is scary we are willing to take food and use it to power vehicles. It scares me in an apocolyptic sorta way.

  4. yalej says:

    Umm milk is already at $4/gallon, at least in some stores here in RTP, NC it is.

  5. hypnotik_jello says:

    Also, this isn’t really news. People in Mexico weren’t able to buy basic food staples such as tortilla shells because the price of maize increased due to ethanol production – it happened a couple months ago.

  6. jitrobug says:

    It’s more apocalyptic than depending on a diminishing supply of dead dinosaurs?

    We could use a shift back from corn syrup to sugar.

    Plus, cows that ate less corn would need less antibiotics.

    Less antibiotics used in farming means the ones we have will continue to work.

    Poor people have no health insurance, old antibiotics are cheaper than fancy new ones.

  7. virgilstar says:

    Unless you’re in a family which feeds cow’s mil to babies, I just don’t see this as a major hit on a weekly food bill. In a 2-person household where we eat cereal with milk for breakfast 5 days a week, plus make tea and coffee, and the occasional bit of cooking with milk, we find it very hard to go through more than a half-gallon per week. If you’re drinking gallons of the stuff straight out of the ‘fridge then maybe it might be a big hit, but otherwise what’s an extra 20c a week on the grocery bill?

  8. alpha says:

    @virgilstar:

    I’m not sure how you manage to do that. I (as a single person) go through about a gallon of milk in 7 days (or so…maybe 7-10).

    I eat cereal for breakfast most days of the week, so say 6 on average, and have the occasional glass of milk when I’m eating something involving peanut butter…so say max 2 times a week.

  9. sacto808 says:

    I just got back from grocery shoping and milk has gone up about 75% here in Sacramento over the last few weeks. I used to get 2 gallons for 3.30 today it was 5.69 for 2 gallons.

  10. Optimistic Prime says:

    Don’t forget the added cost when you pay your taxes. The government gives subsidies for growing corn for ethanol production. As ethanol is not nearly as potent as gasoline either, it does end up being quite a bit more expensive than gasoline in the long run.

  11. David_B says:

    Someone please tell me how does ethanol have “the potential to save Americans a fortune at the pump and reduce our reliance on foreign oil?”

    For one thing, it’s more expensive than gasoline. Sure it may look cheaper per gallon, but a gallon of ethanol won’t get you as far as a gallon of gasoline. That doesn’t even take into account the subsidies given to corn farmers, which some of us pay for with our taxes. Also, the production of ethanol requires gas powered tractors and farm machinery to grow all that corn. On top of that, ethanol degrades over time (unlike gasoline) so it can’t be transported in pipelines, it has to be transported by gas powered trucks.

    And it will never end our dependence on foreign oil. Several studies have shown that if we turned every single acre of this country and turned it into corn fields, we still wouldn’t be able to make enough ethanol to be self sufficient.

    Oh yeah, and ethanol produces worse emissions.

    Ethanol simply isn’t the answer folks. It feels good to think that, but as people become more educated they’ll realize that they don’t want to spend more money to pollute more.

  12. GrandmaSophie says:

    It’s true that cornfed cattle are far more disease prone than grassfed cattle; the result is antibiotic resistance, diminished nutritional value in the milk, not to mention the environmental disaster of manure from feedlots.

    Clearly the solution is to reduce, reduce, reduce. Reduce our driving so we use less fuel whether petroleum or ethanol. Reduce our consumption of crappy processed foods that are horrible for our health and rely heavily on corn and soy. Reduce our consumption of conventional milk in favor of locally produced grassfed milk. That final point will also reduce the fuel used to transport milk.

  13. TechnoDestructo says:

    @yalej:

    In Alaska (on the road system, even, not the villages) milk’s been at 4 dollars a gallon for over a decade.

  14. GirlGoneRiled says:

    We live in a country where 1) a President that suggests wearing a sweater rather than turning up the heat is mocked and run out of office, 2) the official leadership response to a terrorist attack is go encourage the populace to go shopping and 3) the notion of discussing the possibility that we might want to look at ways of not using up all the oil, like, *now* is considered a leftist plot to keep Americans from all the good things in life that they’re encouraged to believe they deserve, well, I’m not at all sure that reducing consumption of anything is something likely to happen smoothly.

  15. AcidReign says:

    …..There are other factors in increases in food costs this year. Alabama is a huge corn producer, and this summer’s crop is largely dead from lack of water. There is serious drought in the Southeast this year, and there has been a pattern of increasing drought out west for about a decade. And weren’t the Rockies short on snow this past winter, too?

    …..I bought store-brand milk at Publix yesterday, and the price was $3.89 a gallon.

  16. dvddesign says:

    I guess I’m switching to oatmeal soon. And all that pricey organic food’s got to be a good deal cheaper soon since they’re feeding modified corn based crap to the animals now.

  17. mathew says:

    See “The Oil We Eat”, a scary look at how US agriculture is utterly dependent on cheap oil.

    http://www.harpers.org/archive/2004/02/0079915

  18. Jonah says:

    Well we’ll all loose some extra pounds now that the cheapest foods (also some of the least healthy) that are all derived from corn get more expensive too. It could be America’s weight lost plan in disguise.

  19. Hawk07 says:

    After the whacko’s finish their Global Warming campaign and have us all using clean running ethanol fuel, their new “cause” will be how Americans are literally taking corn products out of the world’s poor and leaving them perpetually hungry just so we can feed our big SUVs.

  20. DearEditor says:

    The archaeologists of the future will be perplexed: “What made them start burning their food?”…”I dunno, Ryzzx, but look here – more of those B-I-C things. We still don’t know what they were for, but the must have been very important: they’re made from plastic, and they new that stuff would last for thousands of years.”

  21. DearEditor says:

    @DearEditor: Sorry, terrible spelling. “Archaeologists” took it out of me.

  22. Roundonbothends says:

    And “breadbasket to the world?” Screw you world – you can’t have the surplus of our harvest – we’re going to burn it in our cars! Screw you, too, America – you’d don’t get to eat it either – you’re going to burn it in your cars. And screw you, poor people, well, nothing new in that – you can choose to eat or drive, can’t you?

    Minor justice will be if global warming moves the breadbasket up into Canada. The corn farmers can grow tobacco instead.

  23. r81984 says:

    Who ever came up with the idea to make ethanol from corn needs to kill themselves.
    It makes no sense to use corn for ethanol.

    Brazil has years of experience in ethanol, the hard work has already been done for us.
    All we have to do is copy Brazil.

    Ethanol needs to be made from sugar beets, sugar cane, and switchgrass, just like in Brazil, if we want it to work.

  24. swalve says:

    Ethanol isn’t a solution to anything, but it’s not nearly as bad for mileage as people say, as it’s currently used in E10. I don’t remember the number, but ethanol has something like 75% of the energy that gasoline does. So it’s (roughly) 25% less. So when you mix it with the gas at 10%, you’re down to a 2.5% difference in economy. The wind causes a bigger difference to a driver.

  25. lincolnparadox says:

    So, even though I like the idea of electric cars better, let’s talk ethanol biofuel.

    If we converted all of Iowa’s corn to fuel, it still would only buy us 9 days of driving per year (all the corn in Iowa can produce about 5 billion gallons of fuel, which is about 2.7% of the US annual consumption, around 182.5 billion gallons of ethanol gasoline equivalents).

    Switchgrass-cellulose ethanol conversion is about 2.5-times more productive per acre. Unfortunately, it’s not ready for large-scale production (even though they’ve been working on it for 20 years, ahem). Now, if we stopped growing corn on those acres and started growing switchgrass, just in Iowa, we could produce 7.5 billion gallons of fuel (or 4% of our fuel needs). Plus, switchgrass can be grown just about anywhere (for example, places where you can’t grow corn easily, like Wyoming, Montana, the Dakotas).

    Since we produce 55% of our oil-based fuel in North America, if we convert a portion of each state to switchgrass production (about 82 million acres total per year), we wouldn’t need oil from anyone else (except Canada).

    To put that into perspective, that would be about 27% of our current farmland planted with switchgrass, or about 68% of our total farmland, or 205 million acres, with biofuel corn. Here’s the kicker, if we dedicated 60% of our current farmland to switchgrass just for biofuel, we wouldn’t even need gasoline for cars anymore. We’d still need it for planes and larger vehicles, but not day-to-day driving. The farmers would be happy. The drivers would be happy, because fuel prices would be less controlled by the market. The oil companies, well, they’ve been happy long enough. It’s doable, but it will take some support. So why don’t we figure out how to make it large scale and do it?

    Plus, as a bonus, leftovers from the process can be used as feed, fertilizer or burned and used to make even more energy at electric plants…

    …for my plug-in car. Stick that in your pipe and smoke it.

    http://www.seco.cpa.state.tx.us/re_biomass-crops.htm

  26. wyldhoney says:

    As r81984 said; we don’t need corn to make ethanol. There are other crops much richer in sugar that places like Brazil use.

    It’s another case of a large lobby-group subverting something good for the environment to their own twisted purposes.

    Why does everything need to be controlled by a cartel? First we had Big Oil, is Big Corn next?

  27. leftistcoast says:

    Corn to ethanol is not a “green” fuel alternative. Corn is a highly erosive, energy intensive crop and, despite the recent USDA study showing a slight energy gain in ethanol from corn production, most scientist consider it an energy negative process. And, even if we converted 100% of the arable land in the US to producing corn for ethanol, we’d only be able to offset about 25% of our fuel consumption on a given day (check out Vaclav Smil’s “A Beginner’s Guide to Energy”)

    And, with much love for the reasoning of lincolnparadox, I have to say that growing crops in general, be they switch grass, sugar cane or soy beans for conversion to liquid fuels is just not a good idea. The water resources alone that would be required to significantly offset our oil habit would be untenable. The entire concept of growing our fuel in a traditional sense is a ‘glutton’s notion’. We over-produce corn in this country and have been able to do so for decade because of cheap oil and a general disregard for the long term environmental impacts (and un-sustainability of modern methods).

    From an efficiency standpoint, though, I totally agree with your logic. Plug in cars make all the sense in the world considering our current electric infrastructure. Even the dirtiest, most inefficient coal plant converts about 30% of the energy in the coal into usable electricity (newer cofiring plants can get close to 60%…add cogeneration to use the leftover heat for warming a building or use in manufacture and you can get close to 80%). Even with the loses through transmission and conversion, your electric car is still likely pushing 20% efficiency. Compared with the 2-5% efficiency of your internal combustion powered car and it’s a no brainer…

  28. WalterGraff says:

    Ethanol is a joke. It’s far less efficient than gas, and of course these ethanol plants that spouted up are all dieing as no one wants to use ethanol to any degree. Cost more to make ethanol than gas. A complete waste. Folk’s belive this human global warming crap and all we get is less corn for us, and farm animals, and higher prices, oh yea and a dozen people that use it as fuel and think it’s making a difference.

  29. badteaparty says:

    I’m choking on these words as I write them, but I actually pay $12/ gallon for local grass-fed milk. I just wanted to do something to get off the whole overproduced, genetically modified, pesticide soaked train this country is on with our corn – EVERYTHING contains high-fructose corn syrup. Check your bread, for instance – 99% of the time, it’s in there. Then the corn is used to feed the factory-farmed animals with the saddest lives imaginable, so we can have cheap beef and milk, which of course contains antibiotics and artifical growth hormones (not to mention pus from the cows’ infected udders). Who benefits from all this? And who has access through their big donations to all our legislators? could it be Monsanto and ConAgra, who make the genetically modified seeds, provide the pesticides and run the animal farms that feed off of the corn? I’m not a crazy hippie, I’m not priveleged, I just couldn’t stomach it anymore – literally.

  30. Techguy1138 says:

    Where do you get milk like that?

  31. Televiper says:

    I wonder if the price of corn suger will get high enough that Coke will start using cane sugar again.

  32. zorn says:

    Ethanol isn’t is about reducing our dependency on foreign oil…but not for the reasons people think.

    US oil production has dropped since 1970 (our peak of production). Oil production is dropping in many areas of the world. Our current production is about what our production was in **1950**. This is because we are running out of oil. This is why Bush is looking into Oil Shale in Colorado, and why all major Presidential Candidates are pushing Ethanol.

    The world’s oil supply isn’t infinite, and many feel the end isn’t that far off.

  33. zolielo says:

    @swalve: The cars need to be tuned for ethanol by higher compression to make up the mpg difference.

    We need to regulate corn in a new manner. Grow corn modified not for food but for fuel (nearly all corn is genetically modified as is).

    Waste coal into clean-burning diesel could also be an option.

    On a side note the power grid will need to be reworked for electric cars if they are widely adopted. Coal is not the way to go, it is nuclear.

  34. zolielo says:

    CA milk is a bit of a different situation but my milk was $2.78 per US gallon.

  35. SOhp101 says:

    farm lobbyists at their best. our country can’t get any worse.

  36. JuliusJefferson says:

    First of all, corn is hardly the best plant for ethanol production. If the demand becomes great enough, farmers will start growing fields of switch grass specifically for ethanol and other biofuels.

  37. SexCpotatoes says:

    @Techguy1138: on the black milk market!

  38. Venarain says:

    @hypnotik_jello: actually, NAFTA forced mexico to purchase american corn which was subsidized by the govt, this in turn forced small time mexican farmers out of business, making mexico rely on american corn.
    additionally, there will never be a fix all for energy. in some places it will make more sense to use ethanol, others wind or hydrogen…the assumption that there will be an end all be all fix for energy is ridiculous.
    and. corn is evil.

  39. doctor_cos wants you to remain calm says:

    Maybe now that the ‘hybrid’ car mileages are more realistic we can get the electric cars back. Oh wait, GM smashed them in Arizona after Chevron bought the battery manufacturer. Well, enjoy the li-on batteries in your laptops (developed originally for the electric car).

    Thanks GM/big oil/California for making sure I don’t have the option to get an all-electric car.

  40. doctor_cos wants you to remain calm says:

    And thanks ethanol, I love paying $3.75 a gallon for milk.

  41. badteaparty says:

    @Techguy1138: I live an hour North of NYC, and there is a small local farm that sells milk from Ronnybrook Farms, which is further upstate. There is info about Ronnybrook online, or you can call or visit them. They distribute their milk at the farm markets in the city, including Union Square, and they’re also sold in Mrs. Green’s markets here in Westchester. I haven’t checked the local Whole Foods but they may sell it there, too. My sister lives in Boston and I’ve seen similar glass-bottled local milk being sold in the Whole Foods up there. I don’t know what state you’re in, but if you start researching local farmer’s markets or health food stores, you should be able to find out who offers local grass-pastured milk. Most of it is not labeled “organic”, but is actually held to a higher standard than USDA organic. You’ll find out from talking to the farmer.

  42. kimsama says:

    @badteaparty: Oh yeah! Me too. Grass-fed organic milk is waaay less scary. I drink crazy amounts of milk, so I decided that $8/gallon (what I pay for grass-fed) is worth it.

    Besides, I drink about a gallon (maybe a gallon and a half) per week. I doubt that adds up to much more than what someone would pay per week if they had an occasional Starbucks habit (since I don’t buy coffee, I figure I can use the money to buy milk that Monsatan hasn’t filled with poison!).

  43. ancientsociety says:

    This (rising corn prices) might be a good thing. Perhaps more companies will stop using HFCS and replace it with sugar. Also, Range (“Grass”)-fed Cows (not to mention Chickens and Lamb) are SO much healthier, stronger, and taste better than corn-fed.

    Anyway, I’m not sure how the “environmentally-friendly” proponents of ethanol get their science. To convert corn into fuel requires the use of energy and produces pollution. You aren’t saving energy if you’re using it to produce more stored energy. Not to mention you’re producing just as much polution unless the production is fueled by wind, solar, or hydroelectric power.

    Corn is also a bad choice because it’s an intensive crop. Unless you’re letting the field lie fallow every other year or switching crops, corn will quickly leech most of the nutrients from the soil, not to mention the increased erosion corn causes. Which means that the ethanol farmers will begin using more fertilizer (another source of pollution) and more pesticides (another pollutant).

    Ethanol is just another giant gov’t subsidy to our already bloated corn industry.

  44. ogman says:

    I guess selling off all that farmland for McMansions wasn’t such a great idea, huh. But hey, let’s just do nothing and keep relying on that foreign oil.

    And yes, the price of milk is already $4.00 a gallon. Anybody else smell oil company FUD?

  45. zekedms says:

    Ah, the joys of corn owning as much of Congress as the oil companies.

    Corn in our food, our drinks, our bottles, our cars. So much it comes right out our asses, still looking like corn, in fact.

    If we had any sense or less lobbyists, we’d grow sugar for ethanol which is a much cheaper and more efficient process, and a better fuel. But there’s no money in sugar, no demand for materials unless it really drives up the cost of rum.

  46. “And in an irony that is almost too cruel to mention, the race to produce more corn has increased demand for (and increasing U.S. dependence on) fertilizers.”

    Yeah, this part’s pretty scary. The amount of energy that goes into producing nitrogen fertolizer is ENORMOUS. (Consider that when nature adds nitrogen to soil, it uses LIGHTNING to do the job. Well, or legumes.) Once you get through the energy cost of raising corn and refining ethanol, you’ve “spent” a lot more energy than you’ve made.

    It makes me a terrible citizen of the corn belt, but I think ethanol is the WORST ENERGY IDEA EVER. It’s not bad for emissions reduction as a gas additive, but it’s a terrible idea for gas replacement.

    On the plus side, it might seriously grow the market for grass-fed beef!

  47. mac-phisto says:

    good. maybe they’ll start putting sugar back in my pepsi & make it mmm-mmm good like it is in south america.

    additionally, there’s a firm in new zealand that is close to producing a sustainable fuel environment from algae which is used to biodegrade solid-waste. the yield from an acre of this stuff is supposed to be much greater than that of corn or soy (so it is unlikely that we will see it here anytime soon). it has the side benefit of producing clean filtered water & breaking down sold waste. check it out:

    http://www.aquaflowgroup.com/

  48. Jazzercize says:

    Another consequence of high corn prices is that farmers and ranchers are feeding livestock sick stuff these days. From http://sundaygazettemail.com/section/Business/200705213

    “Because feed represents farms’ biggest single cost in raising animals, farmers are serving them a lot of people food, since it can be cheaper.

    Besides trail mix, pigs and cattle are downing cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut-butter cups. Some farmers mix chocolate powder with cereal and feed it to baby pigs.”

    As if there isn’t enough wrong with modern agriculture, pigs are eating REESE’S.

    And yet another consequence of the (govt subsidized) ethanol boom: a major draw on PUBLIC WATER supplies. See: http://www.msnbc.msn.com/id/13406453/

    @doctor_cos: The change in hybrid mileage is disturbing. They couldn’t figure out “realistic driving conditions” earlier? I figured it out after driving my hybrid for about a month.
    @badteaparty: word up.