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Corn prices don't faze ethanol production

Audrey Kittrell 06/28/2011 @ 3:39pm Editorial Intern for Successful Farming magazine and Agriculture Online

When Congress signed the Energy Independence and Security Act into federal law in 2007, House Representative, Nick Rahall, stated the purpose of the act was to protect consumers and “increase the efficiency of products” among other things.  But not quite four years later, the law, which promotes petroleum independence by backing alternative energy like ethanol, is pushing the markets to their threshold.

 

The law is skewing normal supply-and-demand within the commodities markets to the point that corn market prices are soaring and land availability is becoming scarce.

The pressures are due to the “inelastic” properties of the law, which mandates that 15 billion gallons of ethanol be consumed per year by 2015, regardless of what the price of corn is, and regardless of what the price of crude oil is.

"Corn could be $2 a bushel or $10 a bushel, crude could be $50 a barrel or $100 a barrel and that 15 billion gallons has to be there. That means ethanol production is totally unresponsive to price. There's no flexibility,” said Wally Tyner, energy policy specialist.

To reach the renewable fuels standard, about 27 percent of the nation’s corn crop must be devoted to ethanol this year, leaving other corn consumers to compete for the remaining 73 percent, according to the Purdue Department of Agricultural Economics.

Supply disruptions—known as “shocks” in economics—force prices higher than they might be in a typical supply and demand system, Tyner said.  Corn shocks are no exception: The price for corn topped $7 a bushel in recent months.

 

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