Idaho professor says corn ethanol causing economic ‘dislocation’; cites Aussie, South American droughts and rising 3rd World demand as additional cause of price run-up in grains

A professor at the University of Idaho testified before the state Agriculture Affairs committees in the state House and Senate that corn ethanol production is causing economic “dislocation”. Professor Garth Taylor also identified Brazilian, Argentine and Australian droughts as well as increased Third World demand for the run-up in prices. He also said that the weak dollar, US drought risk, low interest rates and the unsigned Farm Bill have impacted prices.

In Mexico, as many as 100,000 farmers took to the streets in Mexico City to protest the end of corn tariffs, saying that the United States would put Mexican corn out of business. On January 1, tariffs on sugar, milk, beans and corn were eliminated under the NAFTA agreement. The US sugar industry and Mexican corn industry are considered to face the greatest risk from this round of tariff eliminations. Last year, food riots erupted in Mexico over the rising price of white corn, which is produced primarily by Mexican producers for the domestic market. Last year’s protests in Mexico sparked the “food vs. fuel” debate over ethanol.

Corn futures at the Chicago Board of Trade have increased to $5 per bushel, prompting expectations of another big spring planting of corn. Last year, farmers planted record acreages of corn and produced a record 13.074 billion bushel corn crop. Despite the record production, reserve corn stocks only increased from 1.3 billion to 1.4 billion bushels, owning to strong ethanol producer demand as well as 2.45 billion bushels in export sales.

In recent weeks, soybean stocks have plunged, creating conditions for further biodiesel feedstock price increases, but corn shortages eased in December according to the USDA. For December 2007 compared to December 2006, corn stocks were 10.3 billion bushels, up 15 percent. Soybean stocks were 2.33 billion bushels, down 14 percent, while wheat stocks fell 14 percent to 1.13 billion bushels.

Providing more background to the reserve stock shortages, the International Food Policy Research Institute recently released a report saying that the world is eating more food than it produces, and that biofuel production runs the risk of creating social unrest. The report projected a 66 percent increase in the price of corn and a 50 percent increase in oilseed prices by 2020, attributed to biofuel production. The report also said that global cereal stocks have fallen to their lowest levels in more than 15 years.

The International Grains Council said that it projected an increase in global wheat stocks in 2008-09 due to increased planting. Poor harvests in Australia, Ukraine and Canada resulted in significant shortfalls in production in the past year.

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