Higher gasoline prices mean higher corn prices, as more ethanol made from corn is used in place of petroleum in motor fuels. The volume of ethanol production is the highest it has ever been this month, and this will increase more as gasoline prices edge up gradually toward $5 a gallon. Eventually, we will likely see a return to the problems that plagued the world grain markets in 2007. This may be already on the way, with U.S. corn prices twice what they were last year and the Department of Agriculture warning yesterday of the lowest corn stockpiles since 1996. The low corn inventory is no cause for alarm, as the new corn harvest is coming in a few months, but it is an indication of the direction the market is going in.
The higher grain prices will lead some experts to call for the corn crop to be saved for use as food, but that is hardly an option. The result would be even higher fuel prices. Fuel prices affect farmers most of all, so we would end up with higher food prices anyway.
It takes several pounds of grain to make a pound of meat or milk, so prices for those commodities will be going up also. Already, beef prices are up about 20 percent from last year. Milk prices, lower because of massive overproduction last year, will eventually go back up as dairy farmers produce less.