This paper reviews various studies that have examined the relationship between corn used in ethanol production and corn prices. They suggest increased corn demand for ethanol could account for 25 to 50 percent of the corn price increase expected from 2006/07 to 2008/09. Another analysis presented in the paper suggests that ethanol could account for 60 percent of the expected increase in corn prices between 2006/07 and 2008/09 when market demand and supply are inelastic with respect to priceā€”i.e., a period when stocks are very low, feed use is slow to respond, export demand is strong due to foreign agricultural policies, and acreage is very constrained.

Global grain market prices have increased sharply over the past two years. The increases have caused food protests and riots, threatening government stability in many developing countries. In the United States, the index of prices received by farmers for all products increased by 34 percent from January 2006 to May 2008 (U.S. Department of Agriculture (USDA), National Agricultural Statistics Service). The index of prices received for feed grains and hay, led by surging corn prices, increased 144 percent over that period. The large increases have raised questions about the causes, effects on market participants, impacts on food prices, and the likely direction of commodity and food prices for the future.
Many factors are contributing to higher farm-level and retail food prices. Rising demand for corn and vegetable oils for biofuel production have been identified as an important cause, generating controversy over the magnitude of the effects on farm and food prices. Expanding biofuel production increases the demand for corn and vegetable oils, increases prices of products that use them as ingredients, and increases prices of other crops that compete with corn and oilseeds for acreage. This paper reviews the factors affecting commodity and food price increases with a focus on biofuels and corn.

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