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Corn+Soybean Digest

Leading Food Policy Center Study Cites Rising Oil Costs as Underlying Force in Food and Fuel Argument

A study released recently by Texas A&M’s Agricultural and Food Policy Center illustrates corn prices have had little to do with rising food costs, the National Corn Growers Association (NCGA) notes. The report, “The Effects of Ethanol on Texas Food and Fuel” also determined that relaxing the renewable fuels standard (RFS) would not result in lower corn prices for livestock and poultry feeders.

The study shows that prices of household groceries, such as bread, eggs and milk are unrelated to ethanol or corn prices. The study points to higher oil prices as the underlying force impacting consumer prices and agriculture. The report was issued in response to mounting questions about the impact of increased ethanol production on the Texas agriculture sector and overall economy.

NCGA President Ron Litterer said, “The Texas A&M study dispels the food vs. fuel debate. This study shows there are many forces creating increases in food costs and ethanol is not a major factor. Clearly, corn is meeting the demands for biofuels.”

The analysis examines the potential effect of relaxing the RFS on corn prices and finds any action to slacken the standard would not significantly reduce corn prices. The RFS provision of the 2007 Energy Independence and Security Act requires the use of 36 billion gallons of renewable fuels by 2022, including a 15-billion-gallon allotment for corn-based ethanol by 2015.

“Relaxing the RFS does not result in significantly lower corn prices,” the report finds. “This is due to the ethanol infrastructure already in place and the generally positive economics for the industry. The ethanol industry has grown in excess of the RFS, indicating that relaxing the standard would not cause a contraction in the industry.”

The analysis found that there are many important economic factors driving agricultural commodity markets and that higher energy costs are the fundamental drivers of changes in the agriculture industry.

“The underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100/barrel oil,” the study says.

The authors also found that speculative investment in the commodities futures market is leading to increased volatility.

“Speculative fund activities in futures markets have led to more money in the markets and more volatility,” according to the report. “Increased price volatility has encouraged wider trading limits. The end result has been the loss of the ability to use futures markets for price risk management due to the inability to finance margin requirements.”

For the complete study, visit

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