THE ONE THING YOU DON’T WANT TO SPEND YOUR TAX REFUND ON …

snoopy taxesHappy Tax Day!

Today’s the deadline.  There are some of us that have already filed and those of us that will be up until 11:59, but regardless, many Americans are enjoying a little bump in their income stream this spring, commonly known as an income tax refund.

Sadly, for many Americans, much of that money will be spent on increased cost of living, namely higher gas prices and higher food prices.

Here’s what interesting: The Consumer Price Index for food increased 0.3 percent from January to February and is now 1.4 percent above the February 2013 level.  This, even though corn prices are near or below the cost of production.

Both grocery store food (food at home) and restaurant food (food away from home) have increased over the same time frame last year.  You can read all the details for yourself in this report from the USDA Economic Research Service.

The correlation bears repeating.  Corn prices have dropped to near or below the cost of production.  Food prices are still increasing.  Could it be that corn and ethanol production is not to blame for increasing food prices?

Yes. We said it before and we’ll say it again: corn and ethanol production are NOT responsible for increasing food prices.

The economics behind this can be confusing and start with a basic understanding that corn used to make ethanol is not the corn that you eat frozen, from a can, or off the cob.  The corn used for ethanol production is also used primarily for livestock feed and export.  Farmers are not diverting corn from your plate to fuel tanks.

Secondly, corn yields are increasing.  Nearly every year (sometimes this isn’t true because of extreme weather like the drought) we produce more bushels of corn than we did the year before.  Livestock numbers aren’t increasing.  So we have extra corn just sitting around waiting to be used.

Extra corn equals low corn prices, which harms family farmers who make a living growing corn.  And if food prices were correlated to corn prices, food prices would be dropping dramatically right now because we have tons of extra corn and the low prices that go with them.

A more realistic correlation is food prices and petroleum prices.  Food is still expensive because petroleum is still expensive.  Have you filled up your gas tank recently?  Gas is still expensive!

(And I’m sure there’s also that pesky little phenomenon that says once a consumer is used to buying a smaller amount of food at a higher price, prices will never decrease again, yielding the food manufactures more cash.  There’s always that.)

The take home points here are simple:

  1. If corn prices caused food prices, food would be dirt cheap right now.
  2. Historically, food prices have been more similar to gasoline prices – we’re trucking that food from somewhere!
  3. I hope you love spending that tax refund on cereal and frozen pizza.

mitchell_lindsayLindsay Mitchell
ICGA/ICMB Marketing Director

Leave a Reply