November 19, 2012

The economics of your Thanksgiving dinner

Dave Juday, Economic Policy Journal - This year’s Thanksgiving dinner will be the most expensive ever.  For that, much of the thanks can be given to ethanol – which continues to divert grain from food to fuel.

To be sure, this year’s drought didn’t help matters.  The corn crop is a full 28 percent smaller than what was expected during planting season last May, and 13 percent smaller than last year’s.  But while grain supplies were tightened, ethanol production nonetheless continued forward.

In light of the drought, a coalition of livestock producers and a bi-partisan group of eight governors requested earlier this summer that the federal ethanol mandate be waived to lessen the impact that ethanol has on corn prices.  Less than one week before Thanksgiving, however, the Obama administration denied that request.

Because of the federal mandate, more corn now goes into ethanol production than into livestock feed.  That mandate – which now stays in place despite the drought – has driven corn to record prices.  High corn prices increase the cost of feeding livestock.  Indeed, corn prices are now so high, some farmers have been driven out of the business.  Those left must pass on costs.

... As for turkeys, about 70 percent of the cost of raising a bird is feed.  Record corn prices mean more expensive turkeys – or bankruptcies

Consider, the American Farm Bureau Federation conducts an annual cost survey for a typical Thanksgiving dinner for 10.  This year the estimated cost is $50.99.  Back in 2006, before the federal ethanol mandate was in place, the cost of Thanksgiving dinner was $34.71.  That’s a 32 percent jump.

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