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Ethanol Mandate Creates Chance of Corn Price Spike

by 5m Editor
8 April 2010, at 6:34am

US - If the US corn industry experiences a weather-induced shortfall that typically has a 10 per cent chance of happening in any given year, the price of a bushel of corn could rise to more than $7.

The impact of this price spike would be felt throughout the agriculture sector, according to a new study by the University of Illinois.

With biofuel mandates left in place, the burden for adjustment would fall primarily on the domestic livestock sector, resulting in financial losses for livestock producers, and eventually in reduced meat supplies and higher retail prices, the report states.

The researchers suggest implementing more flexibility into current renewable biofuels policies, including a relaxation of the annual renewable fuels mandate during an “emergency” situation. In addition, a reduction in the tax incentive for blenders should considered, as well as a lowering of the tariff on imported biofuels, researchers claim. And even that might not be enough.

“In extreme circumstances, the removal of the biofuels mandate, tax incentive and import tariff might be insufficient to limit ethanol production since the economics of blending would remain favorable. In such cases a cap on ethanol production, exports, or both might have to be considered,” the report concludes.

Further Reading

- You can view the study by clicking here.
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