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Food Prices Surging

Posted by Steve Markowitz on August 24, 2012

Weather patterns have always been erratic.  At times they are conducive to crop production and at other times, counterproductive.  This summer’s North America weather and drought has negatively impacted crop growth.

According to the Wall Street Journal, earlier this month the U.S. Department of Agriculture projected the lowest yielding corn crop in 17 years.  They pushed the yield for corn down from 166 to 123 bushels per acre and expect prices to rise to $8.90 a bushel, a 39% jump in one month.  Finally, the USDA projects 13% less corn produced in the US  than the previous year.

The jump in corn prices has negative tentacles throughout the economy.  One problem is that the cost of feed for livestock is increasing.  This will eventually lead to higher meat prices.  Higher food prices in the United States are inevitable.

The draught is not the only reason for increasing food costs.  In one of the worst examples of crony capitalism, the US government mandates that oil companies blend more than 13 billion gallons of ethanol into gasoline per year.  This requirement consumes about 40% of the corn produced in the US.  Using corn for fuel is not only inefficient for agricultural land, but also aggravates food pricing pressures, even more during adverse growing conditions.

Mandating Ethanol usage is but one of the government’s intervention in the farming industry.  In another example of the perverse results of such intervention, farmers’ incomes will likely rise this year because of the draught.  The government offers farmers subsidized crop insurance that pays farmers for the amount of crop loss due to draughts, but at the then going price.  Since the price of corn rises during draughts, most affected framers’ incomes will increase this year.

As bad as the above problems are, they pale in comparison to the worldwide problems.  Even a relatively small increase in the cost of food products can be devastating to hungry people in third world countries.  Such increased result in people starving.  But do not expect the interventionists to take responsibility for this debacle.

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One Response to “Food Prices Surging”

  1. lee stadele said

    Steve:

    The reckless energy policy of American politicians has raised all costs of production and delivery. Tragically, the billions wasted on alternative energy have failed. Fossil fuels still account for 96.4% of all energy supplied. (excluding nuclear and turbine) Solar is 3.6% and wind not even measurable fraction of the total.

    The enormous investment in these failed dramas of the political class will continue until Washington is purged of fantasy.

    Lee

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