ETHANOL

[timhyma]

Ethanol No Longer Seen as Big Driver of Food Price
USAgNet - 10/24/2008

Heavy demand for corn from ethanol makers was seen as a key driver of corn futures to record highs in June, but since then the sharp decline of corn along with other commodities shows that belief was mistaken. According to Stewart Ramsey, senior economist for Global Insight of Philadelphia, the record high prices were a speculative bubble as corn is now down about 50 percent from its record high in June, even as the amount of the grain used to produce the renewable fuel in the United States remained the same.

"We had a lot of reasons for prices to go up and to go up a lot and ethanol use was one of those," he told Reuters News Service.

Meanwhile, U.S. food prices, which normally rise by about 2.5 percent a year, surged by four percent in 2007, the biggest increase in 17 years. World food prices jumped a stunning 40 percent, causing food riots, hoarding and bread lines in some countries.

The government has forecast that U.S. food prices will rise 5.5 percent this year and 4.5 percent in 2009.

The use of corn to produce ethanol in the United States does add to the price of the grain. Analysts, including some in the ethanol sector, say ethanol demand adds about 75 cents to $1.00 per bushel to the price of corn, as a rule of thumb. Other analysts say it adds around 20 percent, or just under 80 cents per bushel at current prices. Those estimates hint that $4 per bushel corn might be priced at only $3 without demand for ethanol fuel.

Federal law calls for production of 9 billion gallons of biofuels this year and 10.5 billion next year. The requirement increases to 36 billion gallons by 2022, with ethanol supply from corn capped at 15 billion gallons. It takes roughly one bushel of corn to produce 2.8 gallons of ethanol.
http://www.usagnet.com/story-national.php?Id=2491&yr=2008