A new United States crop supply and demand report has strengthened corn prices and refueled the food versus fuel debate.
“It’s certainly heating up again in the United States and around the world,” said Dave Ray, vice-president of public affairs with the American Meat Institute, one of the groups blaming the ethanol industry for rising food costs.
Issued Feb. 9, the U.S. Department of Agriculture’s report increased corn used by the ethanol sector to the point where it will consume 40 percent of the 2010-11 crop.
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Ray said ethanol s increasing influence on corn and competing grain and oilseed prices is pitting livestock producers and the food industry against the growing biofuel sector.
The U.S. Renewable Fuels Association argues that the U.S. ethanol industry is not the root cause of global food price inflation.
It uses just three percent of the world’s grain supply and consumes only coarse grains, not food grains like rice and wheat.
It also points out that one-third of every bushel of corn used to make ethanol is returned to the feed market in the form of distillers grain.
It says corn acres and yield are growing and there is plenty of supply in a normal production year to meet all U.S. export and domestic needs.
Ray scoffsed at that notion, noting that corn prices have surpassed $6 US per bushel for the second time since the government implemented its renewable fuel standard in 2007.
“If the ethanol industry has a magic wand to make corn production go up, they better start waving it because the reason corn prices are reaching historic highs is because demand is by far outstripping supply,” he said.
Rick Kment, ethanol analyst with Telvent/DTN, said the current rally differs from 2008. It was driven mostly by fund buyers and soaring oil prices. This one is based on fundamentals.
USDA says the corn stocks-to-use ratio of five percent is the lowest since the end of 1995-96 and only a fraction above the lowest point reached during the Great Depression.
“Corn prices rose sharply in the spring and summer of 1996 to ration usage ahead of the harvest,” the USDA report said.
Kment said corn prices from here on will dictate whether the ethanol industry consumes as much corn as the USDA is predicting.
The Commodity Research Bureau reports that the ethanol corn crush margin has fallen to a one cent loss per gallon, down from a 20 cent profit in July due to a 90 percent rally in corn prices compared to a 55 percent surge in ethanol prices.
“If corn prices continue to move higher we could lose significant ethanol production,” said Kment.
But the USDA said ethanol plants forward bought at lower prices, circumventing the declining margins.
