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Ethanol may push prices up

By ASSOCIATED PRESS
Published December 15, 2006

WASHINGTON - Soaring corn prices are squeezing meat and milk producers, but consumers will not necessarily see higher prices at the grocery checkout, Agriculture Secretary Mike Johanns said Thursday.

Costly corn has made it more expensive to feed cows, chickens and pigs. Demand for ethanol, a fuel made from corn, has pushed the price of corn above $3 a bushel, the highest level in more than a decade.

That is bound to have an effect on farms and ranches, Johanns said.

"My best projection is that for a couple of years, you are going to have a tug-and-pull between various industries," Johanns told the Associated Press.

Because so many factors go into making food, consumers probably will not see a direct effect, he said.

There will not be less corn for people to eat - field corn for livestock and fuel is different from sweet corn, the source of corn on the cob and canned or frozen corn.

Chicken companies are hoping to pass at least some of the high feed costs onto shoppers, despite resistance from supermarkets and fast-food chains, said Richard Lobb, spokesman for the National Chicken Council.

"It's very competitive - we don't have the kind of captive market that some interests do," Lobb said. "We have to compete with pork and beef, for example. If they're not going up, it's hard to raise chicken prices."

Lower chicken prices, disruptions in the global market from bird flu and higher fuel and feed costs made for a tough year in the chicken industry.

"The best thing I can say about fiscal 2006 is, it's over," Tyson Foods chief executive Richard L. Bond said in a news release.

After posting a $117-million profit one year ago, the company reported losses of $235-million.

People eat more chicken than any other meat in the United States, according to the Agriculture Department. The average person is expected to buy 87.5 pounds of chicken this year, compared with 65.4 pounds of beef and 49.4 pounds of pork.

Supermarket shoppers might see chicken and milk prices rise very slightly in the coming year because of higher feed costs as well as cutbacks in production, said Keith Collins, the department's chief economist.

"Surely we see that higher feed costs, over time, ought to be factored into higher retail meat costs," Collins said.

"The effects are going to depend on how the ethanol story plays out over the next two years," Collins said. "It's going to be a function of how much more readily can we attract more land into corn production, what kind of corn yields we see, what kind of global demand will there be for corn. There are a lot of variables."

The agriculture secretary said another important factor is an effort to develop crops besides corn, such as switchgrass, that can be converted to ethanol.

"The marketplace does adjust," Johanns said. "Sometimes, it does take time."

[Last modified December 14, 2006, 22:41:49]