The drought currently enveloping much of the country is the worst drought in many decades. Seventy percent of the corn belt is in a severe drought stage. And this inevitably affects the price of corn.
Such is the lack of rain that barely 30% of the nation's crop harvest is rated as 'good'. And almost 40% of the harvest rates as 'poor'. The bad news is that these factors are going to play a big part in rising prices for a lot of food items you use every day.
The drought has caused the Department of Agriculture to revise its official estimate of the corn harvest harvest to be down by 12% as compared to normal years. A smaller corn harvest means higher prices for what corn is left as prices for crop yield top $8.00 a bushel. Everything that uses corn to be produced in some fashion is going to get more expensive. Meat and food costs are projected to be up 4 or 5 percent because the cost for animal feed is going up along with the price of corn. Sodas and baked goods containing the ubiquitous High Fructose Corn Syrup will see their prices go up, too. So we are all going to feel that pressure in our budgets.
A smaller corn harvest is made worse by the elephant in the room - ethanol producers who have to buy up 40% of the national corn supply just to make fuel for engines. This comes from the federal law calling for 13 billion gallons of ethanol to be blended into gasoline just for this year. And that number isn't going down any time soon. Consumers haven't felt the full effects of ethanol pricing because excess corn harvest from the past few years have created a surplus which has depressed prices everywhere. The depressed prices aren't going to continue for much longer. So at that time, we may have to pay the piper.
Another driver of future price increases was pointed out recently by the Washington Times - Congress wants to encourage (read mandate) the makers of ethanol to mix in ethanol made from non-food sources. They call this 'cellullosic ethanol' because its made from all the stalks and leaves and parts of the corn (and other) plants that we don't eat. The problem is that nobody knows how to make this non-food cellulosic ethanol in a cost-effective manner. Not that they haven't tried, though. So because they can't get or make it themselves, they get fined by the EPA for not meeting these extra requirements. These million of dollars in fines that eventually find their way back to the consumer.
When these gas prices do go up, many consumers will start looking for answers. Finding some good fuel additives that work will be a high priority for drivers who's budgets are already stretched without paying the additional price for the double whammy forced upon them by the EPA and Mother Nature.
This post was published on July 24, 2012 and was updated on July 5, 2016.