Carl Mortished, International Business Editor
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The continuing surge in the price of corn, which is punishing households with higher food prices, is cutting the profits of American ethanol producers and playing havoc with an industry that was blamed for causing the grain shortage.
The price of a bushel of corn soared above $6 on the Chicago Mercantile Exchange last week, pushed higher by news that American farmers were planting less corn.
Farmers planted a record 94 million acres of corn last year but the US Department of Agriculture forecasts only 86 million acres this year as farmers switch from corn to soya bean, another crop that is generating record profits.
Expensive corn is hurting the livestock industry, which in turn will raise the price of meat, Rich Feltes, senior vice-president of commodity research for MF Global, said. “Hog producers are liquidating sows, the farmers are operating in the red,” he said.
The skyrocketing cost of corn is rebounding on the ethanol industry, which is taking an ever larger proportion of the US corn harvest to manufacture road fuel.
Last week Renova, an AIM-listed ethanol manufacturer, confirmed that it was struggling to secure finance for a 21 million-gallon plant in Idaho, and last month Pacific Ethanol, a Californian producer, disclosed big quarterly losses, cost overruns and bank loan defaults as the cost of corn hit its margins.
“Financial markets have been spooked [by the present price of corn],” Christopher Thomas, the chairman of Renova, said. “Two years ago the cost of corn was $2 a bushel; now it has reached $6. As the feedstock goes up, your margin is squeezed.”
Mr Feltes said that ethanol had turned an agricultural commodity into a fuel. “It's all about the shortage of land created by a rapid ramp-up of ethanol,” he said.
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Alexandra:
They've thought about it for more than a minute, unlike you. Wind power is part of a power grid, when the wind doesn't blow in one location, it blows in another. It can contribute about 20% of the power in a given region. They plan for all kinds of wind patterns, trust me. :-) Power grids can also handle coal plants going down for maintenance, they don't build double coal power plants either. Ask the Danish, they are world leaders in wind power.
As for Greens and liberals pushing corn ethanol, you should move the radio dial more, maybe even check out the Internet beyond Rupert Murdoch. Almost all of the farmers and entrepreneurs pushing for ethanol subsidies are Republicans, not Greens. Willie Nelson is like an enthusiastic micro-brewer: the big operations are like Budweiser, in it for the big bucks, they have the political clout to get subsidies.
At least you are trying to learn, that's better than most high school students.
Hero, Montauk,
What? No leftist bashing of the US for using their renewable resources (yearly grown grain crops), for US national needs, instead of handing our treasure over to arab potentates (who surely have the worlds best interests at heart, to purchase the fuel I need to get to my daily job/ heat my home/ etc.
I am sure the professional US haters will gear up shortly!!
Pete, Longview, US
Some facts for you emotional English.
The corn grown in America is going to be grown whether we have an Ethanol industry or not.
99% of the corn grown is not sweet corn but field corn for livestock feed which is inedible for humans.
Ethanol only uses the sugar in the plant, the remains is called distillers grain which still has the protein and is also easier for the livestock to digest.
The rise in food prices has to do with the rise in oil prices.
3rd world countries have food problems because of the high cost of oil. If 3rd world countries can produce it's own energy (ethanol) that would go a long way in lifting themselves out of poverty.
Ireland Forever, Bismarck, US of A
Well said Jonathan Spencer. Bio diesel and ethanol are an absolute joke and what makes matters worse is that here in the UK we are building plants to tun wheat in to ethanol.
Small problem folks.
Energy in:energy out
Wheat = 1:1 at best
Corn = 1:4 at best
Sugar cane = 1:8.
Why are we not encouraging the third world countries that are capable of producing prodigious amounts of cane to do so and let the rest of this laughable technology quietly disappear?
Gilchro1, Perth, Scotland
Fuel cannot come from the food we grow as it will take over the fundemental purpose of growing crops. This is to feed us. Not least that the extraction of the oils is so energy inefficient - what's the point? I'm sorry, but nucleur energy is the ONLY way forward.
Buster, Birmingham,
Unfortunately, we in the USA don't have the best and brightest running our Gubm'nt.They pass mandates that are popular with people that educated beyond their intelligence, Greens and liberals, that can't think beyond what sounds good and never look of what the consequences may be and an equally stupid media that can't even find the dots to connect!
Here, as in the UK everyone is jumping on the wind energy bandwagon, but if you stop and think for a minute.. when the wind stops, then what? You need the same amount of power that as demand requires. The utilities need the same amount for "back up". It's like having a tow truck following you down the roadway! And they can't even figure this out... that wind is a DUPLICATION of power... and they can't even figure that we dupes are paying twice for the same energy!
Alexandra Weit, Palm Springs, CA, USA
It's not the fault of the Green Lobby, it's the fault of central banks inflating their money supplies and speculators looking for a good short-term investment.
Rick, Manchester,
at last farmers around the world, in particular america, are able to earn a decent profit from the soil. hopefully the profits will go into the local rural economies and make them viable once again and the EU can give up their subsidies of farmers that completely distorts world food prices.
with the massive increase in world population the only way for food prices is up no matter what is bring grown/used for fuel production.
derek, Sydney, AUS
The subject of bio-fuels is difficult to fully comprehend and the debates will rumble on for many years. The use of non arable land and crops for bio fuel (diesel) has some justification. The use of prime cereal crop for bio fuel (ethanol) is making the global situation worse.
However, I agree with Jonathan that the emphasis for the UK should be on securing energy supplies by maximising the use of indigenenous supplies (dare i say coal and clean coal technology) combined with improved energy efficiency practices.
Sean Langstone, Bridgend, Mid Glamorgan
To blame the green lobby for a situation where goverment thinks using food stock as a source of material is ill informed at best.
There is a vast amount of organic produce that is not edible that could be used and has so far not been mainly as corn and soya appeared to be the quick and easy solutions.
The implementation by the companies is flawed, not the concept.
Richard, London, England
I sincerely hope the Green Lobby is proud of its achievements.
What results they have achieved with this total pre-occupation with carbon emissions - food shortages and record prices, rape of land resources, increased nuclear build, disgraceful 'trading schemes' and 'carbon offsetting' that are nothing short of mega-buck con tricks, and huge on-costs to the economy through non-hypothecated tax increases. And what has been achieved? Nothing. Notice as well that it is no longer referred to as 'Man Made Global Warming' - it's now 'Climate Change'.
The sooner the government moves the debate to the real issue that WILL receive consensus across the board, the better. That issue is the very pressing need for a real energy policy that concentrates on energy efficiency, conservation and security of supply through indigenous energy production. What does our Enery Minister do exactly except help DEFRA produce irritating adverts about carbon footprints?
Jonathan Spencer, London, England