Food prices expected to rise even higherPublished 4:54pm Tuesday, April 5, 2011
By WAYNE CURTIS / Guest Columnist
Why are food prices so high? That question is on the minds of most consumers today.
With many people still unemployed and others underemployed, this hits many families especially hard. And, unfortunately, economists expect prices to go higher.
The answer to the question is rooted in basic economics. Several factors are working together to push food prices higher.
First, as the international economy has begun to recover from the recession, the demand for grains such as corn, wheat and soybeans has increased substantially. More U.S. grain is being exported to foreign nations at the same time that domestic demand is increasing, pushing prices upward.
Second, the use of corn to manufacture ethanol is climbing. It has been estimated that corn orders for ethanol production will rise 8 percent this year.
The increased use of corn for ethanol has caused prices to rise even more. This is impacting food prices because most of the items in grocery stores are affected by higher corn prices. Corn, for example, is a key feed ingredient for cattle, hogs and chickens.
A third factor is the increasing price of oil and the uncertainty as to future price increases. Turmoil in the Middle East has roiled the oil markets. Further disruptions could cause prices to escalate.
Higher oil prices translate into higher fuel costs. This causes most aspects of food production to be more expensive. It affects farmers and ranchers, food processors and food distributors.
To further exacerbate the grain markets, a severe drought in China — the world’s largest producer of wheat — could push food prices even higher. Economists note that the drought has already driven up prices in China.
If the Chinese have to purchase wheat in the world markets to support their domestic needs, this will further increase the demand for wheat. And as demand increases without commensurate increases in supply, prices have to go up. It’s basic economics.
Wayne Curtis, Ph.D., is on the board of directors of First United Security Bank. He may be reached by email at firstname.lastname@example.org.