Friday, August 24, 2007

How The Price Of Corn Affects Food And Feed

This week Cattle ran an interview with economist Terry Francl regarding the price of corn and how it might affect food prices. Reporter Chuck Jolley conducted the interview and wrote the article:
Jolley: What effect does doubling the price of corn have on foods and what are some of the other factors and their effects?

Francl: The basic assumption that a change in the price of an ingredient will immediately affect the price of a processed product is not one that is born out in either economic theory or in the real world. There are two separate demand curves, one for the ingredient and one for the final or processed product. Just because the ingredient supply/demand conditions change does not mean the supply/demand conditions for the process product have changed and vice versa.

The interview was rather detailed but the key points were made that the recent higher corn prices (which have actually come down from their short-term highs) were not to blame for recent food increases. We were surprised that cattlenetwork ran this report given the rhetoric concerning corn prices and fierce opposition that some in the livestock industry have shown towards renewable fuels such as ethanol. Read the entire interview HERE.

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