Shortfall may drive corn over $7 a bushel: study
April 7, 2010
by Bryan Salvage
WASHINGTON – The price of a bushel of corn could rise to more than $7 if the U.S. corn industry experiences a weather-induced shortfall, which typically has a 10% chance of happening in any given year. The American Meat Institute says the impact of this price spike would be felt throughout the agriculture sector, based on a new study by the University of Illinois.
If biofuel mandates are 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 adds.
Researchers of the study suggest implementing more flexibility into current renewable biofuels policies, including a relaxation of the annual renewable fuels mandate during an “emergency” situation. A reduction in the tax incentive for blenders should also considered, as well as a lowering of the tariff on imported biofuels, researchers claim.
“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.