Paying through the ear for corn – Higher prices will impact everything from soda to steak

The issue here really starts with the government?s push to increase the use of alternative fuels like ethanol to reduce a reliance on foreign oil. Since most ethanol produced here is made from corn, that burgeoning boom is straining corn supplies, and boosting prices.

That makes everything from soda (sweetened with high fructose corn syrup) to the steak from corn-fed beef more expensive. It?s also crimping ethanol producers’ profitability, which could lead to calls for increased federal subsidies to keep them afloat.

This is all happening just as consumers are starting to feel some relief from lower energy prices, which are down nearly 30 percent from the highs reached last summer. Inflationary concerns have now shifted to corn, which has doubled in price from a year ago to a 10-year high of around $4 a bushel today.

Last year’s corn harvest was the third-largest in U.S. history, but as Merrill Lynch chief North American economist David Rosenberg notes, that large supply is being met by even bigger demand from the fast-growing ethanol market.

Congress passed an energy bill in 2005 that mandated the doubling of alternative-fuel use by 2012 to 7.5 billion gallons a year. Then President Bush upped the ante in his State of the Union speech in January by seeking a boost to 35 billion gallons a year by 2017.

That would be a big climb from where we are right now: An estimated 4.9 billion gallons were produced in 2006, according to the Renewable Fuels Association, a trade group representing the ethanol industry. In 2000, 1.6 billion gallons were produced.

There are currently 112 active ethanol plants, while 77 are under construction and 7 are being expanded, the trade group said. Big companies like Archer Daniels Midland Co. to smaller startups and farmers have jumped in on the ethanol-driven corn rush.