First a supply shock, now a demand shock

Crop reports from the last few days reflected a downward shift in supply.

Today we have news about an outward shift in demand: a report that EPA is going to approve a 15% ethanol blend, up from 10%.  That means demand for corn could rise from roughly one third of the U.S. crop to roughly half.  Put another way, from about the 5% of the world's caloric base in grain/oil production (corn, soybeans, wheat and rice) to about 7.5%.

Yikes.

Oddly, prices didn't jump much with the news.  I'd guess the market expected this ruling to be likely awhile ago.

Still, corn is back up to $5.77 a bushel.   Wheat is above $7 and soybeans are trading at nearly $12.  Rice is at $13.45, up from about $9.50 a few months ago.  It's not 2008, but those are pretty high prices.

Comments

  1. Thanks for the update, Mr. Roberts.

    Man, it's the trend that is really troubling, more than the seemingly [don't be fooled, people] small rise of a few bucks. Your post brought many thoughts and questions to my mind. Like...

    Is this ethanol demand-shock-thing gonna get exponentially larger as time goes on? Is there something that can be done now to prevent a potentially tragic outcome down the road?

    Do people making policies know that designing a system in which we pile unnecessary demand onto already-in-demand, weather-sensitive staples we create instabilty on all sides of the equation?

    Why not use algae or any of a variety of other fuel sources that a huge population of the world doesn't require daily for sustenance?

    I'm starting to think this is the setup for the next conflagration - the tortilla wars. OMG.

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