October 24, 2008

Ethanol no longer seen as big driver of food price

Reuters has an interesting article on ethanol and food prices in light of recent declines in corn prices.

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.

Instead they say that commodity prices were pushed up primarily by speculation.

Analysts said soaring corn prices were a symptom of big shifts of investment money into corn and other commodities. As big money began shifting out of stocks a few years ago, commodity markets like corn futures began climbing.

"There was a speculative bubble in the market and that's one of the bigget things that came out of the market is just that equity markets weren't good and for a while the money came into commodities," Ramsay said.

Given the fact that corn prices are falling even while ethanol production is continuing to increase, all the signs suggest that ethanol wasn't the main driver for the high prices seen during the summer. This article is the first that I have seen that points this out.

Source : Reuter

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