Ethanol could fuel rise in corn prices

Corn prices are likely to reach unprecedented highs in the next two to three years, as an ethanol boom in the United States is likely to limit corn's availability for food and feed use, The Wall Street Journal reported on Tuesday.

This has fueled concerns that corn, a staple food ingredient in many countries and widely used as feed in the poultry and livestock sectors, might become out of reach for poorer consumers, boosting food prices in general.

Soaring food prices could cause urban riots in scores of low- income countries that rely on grain imports, said Lester Brown, founder of the Earth Policy Institute and author of a recent report about potential corn demand from the ethanol industry.

The report said the ethanol distilleries being built in the U.S. will need 139 million metric tons of corn by the 2008 harvest, far more than a U.S. Department of Agriculture estimate of the requirement, pegged at around 60 million tons.

Apart from being the biggest corn grower, the U.S. is also the leading corn exporter. Since 2006, corn-importing countries have become more dependent on U.S. corn as China cut back on exports amid increased domestic demand from its own ethanol industry and fears of a supply shortage, according to the Journal.

A recent report by J.P. Morgan showed that average corn prices are expected to be about 4.03 dollars a bushel in 2007, up 61 percent from 2.51 dollars a bushel in 2006.

The J.P. Morgan report said the ethanol industry's growth calls for an additional 500 million to one billion bushels of corn every year.

While such a rapid rise in demand in itself will ensure high corn prices, the study added that any weather threat to the corn crop this year will be "met with record high prices."

Source: Xinhua



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