Rabbit Valley Road

Ken Cook claims that cellulosic ethanol production is driving up the cost of food:

Our country’s rush to ethanol contributed to a dramatic rise in grain and food costs at home and abroad, including, disturbingly, in developing nations where hunger is a perennial problem. The law of supply and demand is working just the way we’d expect: when you use over 25 percent of the U.S. corn crop to produce fuel, you reduce the global food supply and push grain prices skyward.

Jim Greenwood–channeling Michael Pollen–counters that the rise and fall of corn prices are a direct result of the oil market:

Crop prices have fallen dramatically in the past few months as oil and gas prices have declined. A barrel of oil cost $140 in July but is currently less than $65. Similarly, a bushel of corn that was more than $7.50 back in July is now less than $4, even while production of biofuels and other food, feed and fiber demands have all remained consistent.

The Consumer Price Index sides with Greenwood, and Deflation can be a silver lining or not, depending on where you went to school. And despite my bias against ethanol, I’m always skeptical when someone starts talking about “a simple case of supply & demand” as if the world operates like a Business 101 textbook.