Purdue: Oil Prices Driving Ethanol-Corn Prices

KTIC 840 Rural Radio - Nebraska

August 05, 2008

Researchers from Purdue University say higher oil prices are the predominant factor in higher demand for biofuels and higher corn prices. 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.

The Purdue experts point out that - 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. They said, - three-quarters of the recent increase in the price of corn 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 crude oil is high.

The National Corn Growers Association hailed the report as examples of the deep thinking often ignored by mainstream news media. NCGA President Ron Litterer said -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.

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