July 28, 2008


Oil has more impact on corn prices than ethanol, study finds


Rising corn prices had more to deal with soaring crude oil prices than ethanol production, according to a recent report by professors at Purdue University.


According to the study, as oil prices tripled from US$40 per barrel to US$120 per barrel, it has led to a US$3 increase in the price of corn over that time period. Conversely, the growth in ethanol production and use in the US specifically has accounted for just US$1 in the rise in corn prices.


The analysis, done by Professors Phillip Abbott, Chris Hurt and Wallace Tyner for the Farm Foundation, said the factors behind rising commodity and food prices are numerous and complex.


The study asserted that removing incentives and mandates for ethanol would not return corn prices to the low levels previously seen.


Among the other food price drivers cited are growing global food demand and dietary transitions, under-investment in agriculture research, depreciation of the US dollar, increased crop production costs, speculation in commodity markets, weather effects and crop disease, and biofuels policies.

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