May 06, 2008

Study Examines Ethanol's Effect On Corn Prices

University of Wisconsin at Madison study shows that ethanol not solely responsible for high corn prices.Professor T. Randall Fortenbery and graduate student Hwanil Park of the University of Wisconsin at Madison recently completed a study examining the effects of ethanol production on corn prices. It is an interesting study and the main conclusion is that ethanol alone can't explain the increase that has been seen in the price of corn.

Results show that increasing ethanol production has a significant impact on the national average U.S. corn price. The positive price change is consistent with previous research. However, in contrast to what is written in much of the popular press, results do not suggest the extremely high corn prices in spring of 2007 can be completely attributed to ethanol.

In fact according to the study, if ethanol production were the only thing driving corn prices, the price would have increased 41 cents from the first quarter of the 2006/2007 marketing year to the first quarter of the 2007/2008 marketing year. This would have resulted in a price of $2.95 per bushel. The actual price was $3.34 per bushel, so 39 cents of the increase came from other factors.

Source : The Effect of Ethanol Production on the U.S. National Corn Price (PDF)

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