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Ethanol Consumes Extra Production

World agricultural commodity stocks have fallen sharply in the past decade and may continue to be hit by growing biofuels production and rising demand, a CME Group economist said Aug. 17.

John Hill, an economist for CME – the world’s largest derivatives exchange – said the rise in biofuels output posed a threat to agricultural commodity stocks, despite increasing production.

“Agricultural commodity stocks are extremely low when we look at the stocks-to-use ratio for the past 10 years… even though production has increased,” Hill said in a presentation in Johannesburg.

While corn output has grown by about 30 per cent since 1999, Hill said ending stocks have dropped by almost 25 per cent in the same period.

Wheat had also seen a similar trend, with output rising 16 per cent and ending stocks falling 19 per cent since 1999 on the back of soaring demand.

“As (corn) prices increased, so did acreage. However, demand for biofuels and from livestock feeding continued to chip away at ending stocks,” Hill said.

Farm gate prices for grain and soybeans have doubled this decade, boosted by a boom in ethanol production and supply crunches in some parts of the world caused by drought.

The United States Department of Agriculture (USDA) says a third of this year’s corn crop in the U. S. – the world’s biggest corn grower – will be used to make fuel ethanol, compared with 11 per cent of the 2004 crop.

Ethanol is responsible for more U. S. farmland each year.

“By 2015, they’re looking at something like 38 per cent of the corn crop going to ethanol production,” Hill said.

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