Department of Economics

Food and Fuel

Wallace Centers of Iowa Dialogue DinnerDes Moines, Iowa

July 16, 2009

Chad HartAssistant Professor/Grain Markets Specialist

chart@iastate.edu515-294-9911

Department of Economics

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Ethanol ProductionBased on the pace over the 1st 2 months of 2009

Sources: Renewable Fuels Association, Energy Information Administration

Department of Economics

Commodity Price Ratios (Sept. 2006 =1)

0.5

1.0

1.5

2.0

2.5

3.0

3.59/1

/2006

11/1

/2006

1/1

/2007

3/1

/2007

5/1

/2007

7/1

/2007

9/1

/2007

11/1

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7/1

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9/1

/2008

11/1

/2008

1/1

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3/1

/2009

5/1

/2009

7/1

/2009

Corn Soybeans Wheat Rice

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Factors Leading to Higher Commodity Prices

Source: USDA-ERS, Trostle, July 2008

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Commodity Price Indexes

Source: International Financial Statistics

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Events in 2007Droughts:

Northern Europe, Ukraine, Russia, Northwest Africa, Turkey, Australia, and Argentina

Increased export taxes:China, Argentina, Russia, Kazakhstan,

Malaysia, and Indonesia

Export restrictions:Argentina, Ukraine, India, Vietnam, Serbia,

Egypt, Cambodia, Indonesia, and Kazakhstan

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The Food Dollar

Source: USDA-ERS

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U.S. Food Marketing SystemFive distinct sectors

•Agricultural production•2 million farms

•Food processing and manufacturing•25,000 food and beverage companies

•Wholesale distribution•33,000 food wholesalers

•Retail distribution•113,000 food retailers•378,000 foodservice companies

•Consumption•111 million households

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Farm to Retail Food Price Spread

Food Farm Value Share of

Retail Food Price

Food Farm Value Share of

Retail Food Price

Eggs 53 Canned Corn 22

Beef 49 Sugar 27

Chicken 48 Wheat Flour 19

Milk 34 Bread 5

Pork 31 Corn Flakes 4

Orange Juice 33 Corn Syrup 3

Source: USDA-ERS, 2001

Department of Economics

Declining Farm Value in Food

Source: USDA-ERS

15%

20%

25%

30%

35%

40%

45%

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

In the 1950s, 25% of food was consumed away from home.Today, nearly 50% of food is consumed away from home.

Department of Economics

Changes in Food Price Indexes

Sources: Bureau of Labor Statistics, USDA-ERS

Consumer price indexes Relative importance

1

Final 2005

Final 2006

Final 2007

Final2008

Forecast 20092

(Percent)All food 100.0 2.4 2.4 4.0 5.5 3.0 - 4.0Food away from home 44.3 3.1 3.1 3.6 4.4 3.5 - 4.5Food at home 55.7 1.9 1.7 4.2 6.4 2.5 - 3.5Meats, poultry, and fish 12.2 2.4 0.8 3.8 4.2 2.0 - 3.0Eggs 0.7 -13.7 4.9 29.2 14.0 -7.5 - -6.5Dairy products 6.2 1.2 -0.6 7.4 8.0 -5.5 - -4.5Fats and oils 1.6 -0.1 0.2 2.9 13.8 3.0 - 4.0Fruits and vegetables 8.2 3.7 4.8 3.8 6.2 3.0 - 4.0Sugar and sweets 2.1 1.2 3.8 3.1 5.5 3.0 - 4.0Cereals and bakery 7.9 1.5 1.8 4.4 10.2 2.5 - 3.5Nonalcoholic beverages 6.7 2.9 2.0 4.1 4.3 3.0 - 4.0Other foods 10.1 1.6 1.4 1.8 5.2 3.0 - 4.01BLS estimated expenditure shares, December 20082Forecasts updated June 20, 2009

Department of Economics

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200

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Conventional Biofuels Cellulosic Biofuels

Biodiesel Additional Advanced Biofuels

Renewable Fuels Standard (RFS)

60% GHG Emission Reduction

50% GHG Emission Reduction

20% GHG Emission ReductionIf construction started after Dec. 2007

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BiomassWind

Solar

Alternative Sources

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Thank you for your time!

Any questions?

http://www.econ.iastate.edu/faculty/hart/