Food Vs. Fuel: Soybeans Spike

I was browsing through a recent copy the WSJ when I came accross an article about soybean prices. On Friday, soybeans jumped by 23% on worries of short supplies.

The writer attributed the increase to to main factors: lower supply due to displacement by corn, and a delayed harvest due to a wet spring and summer.

Agriculture processors such as Archer-Daniels-Midland Co., and Cargill Inc. crush soybeans into soybean oil and soybean meal. Soy oil is used in cooking and has industrial applications such as biodiesel. Soymeal is fed to livestock.

Soybean stocks are at near-record lows this year. That is partly because farmers last season planted more corn instead of soybeans to cash in on high corn prices driven by a booming export market and a growing appetite for corn-based ethanol.

This illustrates the danger of quickly shifting to food based bio-fuels. The high demand for corn caused farmers to plant more corn and less soybeans (and other crops, like barley and wheat). This reduces the supply of those crops, and causes our animal feed and food prices to increase. Beer is getting more expensive!

Instead of propping up corn based ethanol, making big agriculture even richer, and driving our food prices up, Congress should kill the ethanol tariff and allow importation of ethanol and sugar beet feedstock from Brazil. This will allow us to bridge our ethanol needs until the point when non-food sources of ethanol are viable.

Of course the ethanol mandates and price supports are not the only reason that food has gone up in price so dramatically, probably the largest factor is the price of oil, followed by a weakened dollar.

We have ways to reduce the price of oil, but Congress is not yet willing to use them. It's a shame, because downward pressure on oil would result in downward pressure on food prices also.