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Corn+Soybean Digest

Purdue Researchers Blame Oil Spike for Ethanol Demand, Higher Corn Prices

In a new report, researchers from Purdue University have found that higher oil prices are the predominant factor in higher demand for biofuels and higher corn prices. The connection was hailed by the National Corn Growers Association (NCGA) as examples of the deep thinking often ignored by mainstream news media.

“At times, the debate about ethanol has favored rhetoric over research,” says NCGA President Ron Litterer. “Reports such as this are mounting evidence that many fears about ethanol are ungrounded, and that biofuels are an important part of the solution when it comes to energy independence and sustainability.”

In their report prepared for the Farm Foundation, Purdue Economists Wallace Tyner, Christopher Hurt and Philip Abbott looked at the various driving forces behind food price increases and found a mix of reasons. And underlying the increased demand for ethanol was higher oil prices.

“Higher oil prices have been driving corn prices,” they stated in a July 30 Web-based seminar. “Higher crude leads to higher gasoline, which increases the demand for ethanol, which provides incentives to build more ethanol plants, which increases the demand for corn. Higher corn demand leads to a higher corn price.”

Three-quarters of the recent increase in the price of corn, they say, was attributable to higher oil prices, and one-quarter was tied to the ethanol tax credit. And even if changes were made in U.S. biofuels policies, corn prices would be expected to remain high so long as the crude oil is high.

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