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]

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