AG MOBILE
FREE E-MAIL NEWSLETTER
Log In
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.
