In a bid to bring down milk prices, Sen. Charles Schumer (D-N.Y.) announced legislation yesterday that would temporarily repeal a tariff on foreign ethanol, freeing up more supplies of corn for dairy farmers.
As I pointed out in an earlier post, this is a bad idea. Not only for the reasons I pointed out earlier but also because the amount of corn available after ethanol production is actually higher now than it was just a couple of years ago.
Amount of corn left out of each years harvest after the amount used for ethanol has been subtracted.
2007 - 13,167,741,000 bushels - 2,592,592,593 bushels = 10,575,148,407 bushels
2006 - 10,534,868,000 bushels - 1,798,148,148 bushels = 8,736,719,852 bushels
2005 - 11,112,072,000 bushels - 1,445,925,926 bushels = 9,666,146,074 bushels
I go into more detail on how I came up with these numbers in this post. But as you can see by the numbers the amount of corn left over after ethanol production is higher than it was in 2005 when the average annual corn price for the year was $2.00 per bushel.
The present corn prices have more to do with increased demand from foreign buyers than to ethanol pulling corn off the market.
Ample supplies, together with a continued lack of competition and firm demand, have boosted U.S. corn export prospects to a record 62.0 million. The previous record of 61.8 million tons was reached in 1979/80.
Full Report (PDF)
And the reason dairy prices are high right now is because the amounts that are being exported are at record levels.
November dairy product export numbers were pretty impressive, the USDA Foreign Ag Service (FAS) says cheese exports for the month were 21.1 million pounds, up 34% from November of 2006, butterfat exports were 12-times the volume of a year ago at 15.2 million pounds. Dry whey exports were up 21% for the month at just over 45 million pounds. Skim milk powder exports were up 79% compared to a year ago at 62.7 million pounds in November. FAS put the total value of dairy exports in November at a record $350.5 million. For the first 11 months of 2007, dairy export value was $2.7 billion, a 56% increase over the same period in 2006.
It is the demand from other countries that is pushing up dairy prices not the input (corn) costs.
Lowering the import tariff on ethanol will do nothing to lower demand from foreign markets for either corn or dairy products. As far as I can tell all this action would do is harm ethanol producers and corn growers without actually doing anything to lower prices.