Hey look, it's the food or fuel argument again
In an article published on Monday, the FT blames (subs req'd) the raise of soft commodities on the rise on the demand for biofuels (also known as the sometimes disputed "Tortilla effect"). "Just as energy and metals prices have rallied sharply in real terms, a similar fate awaits grains, which remain significantly below the highs of the 1970s and mid-1990s," says Michael Hughes of Deutsche Bank.
There are serious concerns about food prices rising, which would be considered bad for inflation. In addition, the demand keeps on growing strongly, thanks to the current economical situation.
The article also claims that biofuels are gradually taking over as the main growth driver of agriculture demand. Goldman Sachs says that if government policies (especially in the US and the EU) are adopted in full, global demand for biofuels could increase from 10bn gallons a year to 25bn gallons by 2010. Goldman expects the trend rate of growth in demand for agricultural commodities to rise from 1.9 per cent a year between 1997 and 2006 to 2.6 per cent a year between 1996 and 2015.
This is expected to lead to an extended period of high prices. Goldman forecasts that five years from now, corn will trade at $5 a bushel, compared with about current $3.50, while wheat will rise from $4.50 to $6 a bushel.
[Source: Financial Tribune]
Reader Comments (Page 1 of 1)
1985 Gripen 1:54PM (5/30/2007)
I appreciate that you wrote "sometimes disputed Tortilla Effect", but I'm bothered that anyone (without an agenda) would still be linking higher tortilla prices IN MEXICO and ethanol production. Just look at the facts.
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Tim 8:07AM (5/31/2007)
Great, its going to cost more for my burrito.
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Kent Beuchert 11:45AM (5/31/2007)
The high price of corn has already driven up the price of everything that uses it, or soybeans, whose price has also jumped because of reduced production. That means - cows, hogs, chickens,
cereal, etc. etc. Biofules using tillable land is kust plain stupid in every conceievable way - it is
as inefficient as gasoline as an energy source for transportation, emissions-wise it makes very little sense, it makes no economic sense either.
If there were no voting farmers in th eMidwest, there woul dbe no subsidies for ethanol and without subsidies, this silly technology would quickly disappear. The future of the automobile is
electric, not ICE. ICE is simply way too expensive.
Reply