Ethanol’s Boom Holds Hidden Costs: Higher Food Prices

Demand for corn as the raw material for an alternative vehicle fuel is creating unintended consequences throughout the global food chain.

The Agriculture Department predicts that by Sept. 1 U.S. farmers will have less corn on hand than at any time since 1996, when inventories were their lowest in 50 years and prices rose above $5 a bushel. The department says global inventories this year will be their lowest since 1978. Corn futures for March delivery closed today at $4.0625 a bushel on the Chicago Board of Trade, compared with a 10-year average of $2.34.
[…]Other links in the food chain are also feeling the effects of rising demand for corn-based ethanol. Corn syrup accounts for about 10 percent of the costs for bottlers of soft drinks made by Atlanta-based Coca-Cola and PepsiCo Inc. of Purchase, New York.

Prices usually drop after a big harvest like the one in 2006. Instead, for the first time in memory, corn syrup prices are rising for two consecutive years — up more than 20 percent in 2007 after scattered increases of 5 percent to 20 percent the previous year, says John Sicher, publisher of the industry journal Beverage Digest.

The main uncertainty is how much corn American farmers can grow — and how many acres it will take.

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