The Cost of Corn in Meat

I recently ran across this publication from the USDA-Economic Research Service back in 2008.  The piece, written by Ephraim Leibtag, is mainly about the high costs of corn at the time (they subsequently went much higher), and the potential impacts on the cost of food.

That publication had a little back of the envelope calculation that I found very interesting, as it relates to the argument that meat production is wasteful - a topic I've discussed before.

Here is Leibtag:

To avoid downplaying potential impacts, this analysis uses upper-bound conversion estimates of 7 pounds of corn to produce 1 pound of beef, 6.5 pounds of corn to produce 1 pound of pork, and 2.6 pounds of corn to produce 1 pound of chicken.  Using these ratios and data from the Bureau of Labor Statistics, a simple passthrough model provides estimates of the expected increase in meat prices given the higher corn prices. The logic of this model is illustrated by an example using chicken prices. Over the past 20 years, the average price of a bushel of corn in the U.S. has been $2.28, implying that a pound of chicken at the retail level uses 8 cents worth of corn, or about 4 percent of the $2.05 average retail price for chicken breasts. 

I don't know about you, but 8 cents doesn't seem like a lot.  If that corn is "wasted" (I've previously argued that "waste" is the wrong word here), that's not much waste.

I don't know exactly how Leibtag made his calculation, but I'll make an even cruder one using current figures.  The price of corn today is around $4.15/bushel.  There are 56lbs in a bushel, so corn costs $0.074/lb.  So, if a steer requires 7 lbs of corn to make 1 lb of beef, then the cost of the corn in a pound of beef is: $0.074*7 = $0.519.  The retail price of beef today is around $5/lb, so about 10.3% of the retail price of beef is feed corn.  That means about 90% of the retail price of beef is due to other stuff.  

Similar calculations show that for a pound of pork $0.48 of the retail cost is due to corn and for chicken it is $0.19 (this is higher than Leitbag's numbers because, among other things, the cost of corn today is much higher and because my calculation also underestimates the costs of feed in a pound of retail product because it doesn't take into account the ability of farmers to substitute toward cheaper feeds).  Given retail prices of for pork and chicken are $3.8/lb and $2/lb, that means that 12.8% and 9.9% of the retail prices of pork and chicken.  

So, the vast majority of the cost of meat - around 90% - is due to non-feed factors.  

Sometimes a little context is useful in these debates.