The Demand for Corn is Popping
Monday, February 26, 2007SUSIE GHARIB: The race to produce more renewable fuel is igniting a food fight of sorts in the U.S. The ethanol industry and the food industry are in a battle over corn. Corn supplies have been shrinking and corn prices have been rising with the increase in ethanol production. As Diane Eastabrook reports, consumers could be caught in the middle.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Chicago- based Azteca Foods, it is costing a lot more dough these days to crank out tortilla chips. In the last year, the price of corn, the main ingredient for the chips, has risen a staggering 80 percent due to the increased demand for the grain by ethanol producers. Azteca President Arthur Velasquez is bracing himself for even higher prices.
ARTHUR VELASQUEZ, PRESIDENT, AZTECA FOODS: We're saying as a company, this is not a weather situation. This is not a temporary situation. We have to plan as this being a permanent situation, with the prices even able to go even higher.
EASTABROOK: With 117 ethanol plants on line and 70 more under construction, the amount of corn need for ethanol is expected to double over the next couple of years. Corn futures prices at the Chicago Board of Trade have already shot past $4 a bushel and traders think they could hit a record $6 a bushel by summer. That has AGResource President Dan Basse questioning the economics of ethanol.
DAN BASSE, PRESIDENT, AGRESOURCE COMPANY: Corn is not the crop that is going to fuel America's energy revival. We need corn for food. You can't take too much of it for fuel.
EASTABROOK: The Bush administration is calling for an increase in the use of renewable fuels to 35 billion gallons over the next decade, and ethanol would likely account for much of that. As a result, the president could be on a collision course over corn with food companies. Many of them say the government is artificially fueling growth in the ethanol industry with a tax credit to refiners and a tariff on foreign ethanol. Grocery Manufacturers Association President Cal Dooley is demanding an end to those subsidies.
CAL DOOLEY, PRESIDENT, GROCERY MANUFACTURERS ASSOC.: We are very concerned that this policy that we have in place now -- which is really taking a bushel of corn that goes into ethanol and providing significant subsidies for it -- but that same bushel of corn that goes into the production of pork or beef or poultry or even a box of corn flakes receives no subsidy whatsoever.
EASTABROOK: Still, Bianco Research energy analyst Howard Simons thinks Dooley's argument could fall on deaf ears in Washington.
HOWARD SIMONS, ENERGY ANALYST, BIANCO RESEARCH: If I'm a politician, I would rather see people pay higher food prices than higher gasoline prices, because I'm held accountable to higher gasoline prices.
EASTABROOK: That could change over time if food prices rise too much. Azteca will be raising the price of its tortilla chips in the next month and says more price hikes could be in line if corn prices keep heading up. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
