Food or Fuel

January 31, 2007

I was on my Illinois farm this past week and had the privilege of speaking to the Knox County Farm Bureau. It was so much fun to see so many familiar faces of Farm Bureau comrades that I had worked with some 30 or 40 years ago.

It's no surprise to you, I'm sure, but the mood is up beat -- excited about $3 corn and a brighter future.

The President wants to reduce gasoline usage by 20 percent in the next 10 years. "Ethanol to the rescue." Corn farmers are all smiles as they contemplate shifting more oftheir crop land to corn.

Everyone is not smiling, however. The livestock industry is apprehensive -- just a little "up tight." The question is "food or fuel." Will we have enough corn for both? I enjoy watching the market work. More acres will be shifted to corn with these kind ofprices. I don't see any economic train wreck. Let's assume corn prices stay at $3.50 per bushel. At $3.50 corn, the breakeven price for raising hogs is 44 cents per pound. That's not out of sight. That might translate into a 3% increase in the price ofpork. Big deal!

Food is cheap in this country. The average family spends less than 10% oftheir income on food. Any consumer that is willing to pay $2 for a little bottle of water doesn't care. Any consumer that is willing to pay twice the price for designer clothes doesn't care.

To hear the wailing and gnashing of teeth from our livestock industry, you would think they had never seen $3 corn. Well, we had $5 corn in 1996. The market worked and we raised more corn and the price came down.

In my family lifetime, I have sold hogs for 12 cents per pound and fed them 75 cents per bushel corn Somehow, we made the necessary adjustments to get to $3 corn and 45 cents hogs today. In the end, corn prices will be higher and so will livestock prices. Sounds good to me.

Just let the market work, and we'll find that its not "food or fuel" but "food and fuel."

Until next week, I am John Block from Washington.