Michael Pollan is the author of The Omnivore’s Dilema. “I've been following a bushel of corn through the industrial food system,” he wrote a few years ago. “What I keep finding in case after case, if you follow the food back to the farm -- if you follow the nutrients, if you follow the carbon -- you end up in a corn field in Iowa, over and over and over again.”
Pollan thinks that’s a bad thing. But, he notes, “Overproduction of cheap corn is government policy. It’s done in the name of the public interest, using our taxpayer dollars. American taxpayers subsidize every bushel of industrial corn produced in this country, at a cost of some four billion dollars a year.”
If that doesn’t explain why investors expect the price of corn to keep increasing, maybe this Reuters report does. “Assuming U.S. ethanol production continues to expand to the Energy Department’s projected 11.2 billion gallons by 2012, about 30 percent of the corn crop will be needed for the fuel supply, according to the Government Accountability Office.”
So Americans are going to burn, rather than eat, about a third of our corn. Reuters notes that would leave less corn to feed to animals, thus increasing feed costs and meat prices. Again, unless the government steps out of the corn market, betting on higher prices makes sense.
“You can bet what’s left in your 401(k) that there’s about to be a commodities bubble -- one that will generate big fees for Wall Street and leave a mess for everyone else,” Pearlstein concludes.
He’s correct that food and fuel prices may well decline, if government bodies get out of the way and let the market work. However, as long as government policies continue driving down supplies, prices seem more likely to increase than to decrease.