I believe that blaming biofuels for high feedstuff prices is simplistic.
Much has been written recently about the negative societal impact of developed nations’ adoption of biofuels and its direct impact on food prices. Making ethanol from corn is inefficient compared to Brazilian sugar cane. US energy policy, including import duties on ethanol, has increased corn and soy prices, but it is not the only culprit.
Spring 2007’s flooding in Kansas and Oklahoma and Australia’s summer drought were natural events which impacted wheat prices. And so are the rising needs of a growing global population and Southeast China’s January floods. What has received little attention to date is the inflow of highly speculative capital from new, non-commodity-related, investors. This disturbing trend is facilitated by the newfound correlation between energy values and corn/soybeans. The higher return currently provided to farmers will more than likely lead to a precipitous reversal when overextended participants finally liquidate positions.
I believe fund dollars have caused more damage than biofuels use. Wheat prices have soared to unnecessary levels due to being swept into fund speculation.
And I know that global grain stocks were on a downward trend long before the biofuels push. Despite discussions among, and warnings from, entities worried about this condition and its long-term implications, markets did not react appropriately—partially due to US farm programs—to increase output.
The advent of biofuels woke up the financial community to the prospects of hedging corn and soy against escalating hydrocarbon values. That development brought in far more capital that needed which, driven by the declining dollar, escalating US dollar-denominated energy costs, and an inflationary mindset, led to escalating corn/soy/palm oil prices and drug nonenergy grains along.
Is there a parallel to the formerly escalating housing market? Yes. Hedging over 70% of the US soybean crop is not a healthy financial condition.
Gerard d’Aquin
President, Con-Sul Inc.
Bigfork, Mont.
