Ethanol Not Driving Food Prices

Cindy Zimmerman

Global InsightA Reuters report from the UK today quotes an economic expert as saying higher food prices this year were driven by speculators, not ethanol.

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. Corn is down about 50 percent from its record high in June, even as the amount of the grain used to produce the renewable fuel in the United States remained the same.

The article quotes Stewart Ramsey, senior economist for Global Insight, a Philadelphia-based company that provides economic, financial, and political analysis and forecasting. “The record high prices were a speculative bubble,” Ramsey says in the article.

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.

Ethanol, Food prices