June 23, 2008

Ethanol Not Responsible For High Wheat Prices

Two months ago there were numerous articles in the news about how ethanol production was causing wheat prices to rise by taking away wheat acres. Well it turns out that that just wasn't true, at least not according to two wheat industry leaders.

David Cleavinger, President of the National Association of Wheat Growers and Ron Suppes, Chairman of U.S. Wheat Associates provided testimony before the House Small Business Committee Hearing to Examine “Food Prices and Small Businesses” last week. In their testimony they note the following reasons for high wheat prices.

  • Strong competition for acres among crops in an environment where wheat is losing competitiveness.
  • Production problems including poor weather conditions in many wheat growing regions worldwide including the U.S., Australia and parts of Europe.
  • Global consumption exceeding production seven of the last eight years.
  • Increased world demand for food, especially high quality food including wheat products, from both larger world populations and a rising middle class in developing countries.
  • Domestic stocks at 60-year lows and world stocks at 30-year lows.
  • A weak dollar promoting increased exports from the U.S., which is the world’s largest wheat exporter and sells about half of its wheat crop overseas in a typical year.
  • Export restrictions by some countries, which have curtailed the world’s access to wheat.
We have seen some of these same reasons listed before for general food price increases, but the one thing they say isn't causing wheat prices to rise is ethanol production.
Wheat competitiveness, highlighted in the first bullet point above, has been a particular concern for the wheat industry for a number of years. The decline in wheat acres in the United States is not a recent phenomenon spurred on by biofuels, as many would suggest. On the contrary, wheat acres have been declining steadily for decades; plantings are about 30 percent lower than in the 1980s.
Source : News Release

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