Renewable fuel competes for the corn harvest, and restaurants pay the price. By using ethanol and biodiesel, fuels made from corn and soybeans, we could free ourselves from foreign oil dependence, clean the air some and revitalize many American farms. But there’s also a price—and restaurants are going to pay it.
As more corn gets pumped into gas tanks, there’s less for tables and feedlots. And with that competition comes rising commodity prices: In November, corn futures on the Chicago Board of Trade hit a 10-year peak of $3.68 a bushel. Since January, soybean oil has jumped from 21 to 28 cents a gallon. And after holding steady for two years, the U.S. Department of Agriculture’s price index for corn sweeteners has gone up 13.2 percent since December.
“I believe this is a sea change,” says William Tierney, executive vice president of research and marketing at John Stewart & Associates, a commodity brokerage in Washington, D.C. “In a short period of time, we’re going to be using the majority of our corn to produce ethanol. It’s happening faster than anyone had anticipated.”
Corn might seem like a mere side dish, but it’s an ingredient in a large part of restaurant menus. Corn sweeteners are used in sodas, sauces and baked goods. More than half of the nation’s corn production goes to feed cattle, pigs and poultry—but it may not for long.
Only five years ago, the United States produced a mere 1.8 billion gallons of ethanol. Within the next two years, as 48 new plants come on line, the nation will be brewing 8.5 billion gallons a year.
Even at that pace, the country is burning corn faster than refineries can make it. By August, U.S. drivers were using 46 percent more ethanol than they did in January, 2.4 million gallons more per day than existing plants were churning out.
The effects are echoing across the great plains. Today, reports the USDA, 12 percent of all domestic corn is turning into ethanol. That percentage should rise to 23 percent by 2015.
Ranchers are already pinched by rising feed costs. “Ethanol’s rapid expansion has certainly had a negative effect on feeder cattle prices and ranchers’ bottom lines,” says Gregg Doud, chief economist of the National Cattlemen’s Beef Association. But he predicts beef prices will hold steady, because some waste from ethanol production can be mixed into cattle rations.
Other are less upbeat. Tyson Foods, the world’s largest meat processor, raised beef prices 4.5 percent in its fourth quarter and says more increases are on the way. Dan Basse, president of the Chicago forecasting firm AgResource, expects hikes of 20 to 30 percent by 2008. “That’s the kind of increase that forces people to consider reducing portion sizes or raising prices.”
Restaurants might feel the bite in their fryers too. Within 18 months, reports the National Biodiesel Board, domestic production of biodiesel, concocted from vegetable oil or animal fat, should nearly triple, to 1.8 billion gallons a year.
By 2008, warns John Baize, an oilseeds consultant in Falls Church, Virginia, “Vegetable oil prices will probably be 50 percent higher or more than they have been on a consistent basis.”
The ethanol boom might level out when corn hits $4.05 a bushel—possibly in two years—estimates a November study by Iowa State University. Ethanol can be brewed from wood chips and other plant wastes, and newer technologies could make the cost competitive with corn.
But for the next couple of years, brace yourself, advises Baize. “People who want food just got another competitor for it, and it’s an energy producer.”