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Ethanol Key Factor In Corn Price Spike

Grain and oilseed prices have reached some of their strongest values in years, and a key contributor is demand for corn from U.S. ethanol plants, according to an analyst.

Kevin Grier, senior market analyst with the George Morris Centre said the current amount of corn being used by U.S.- based ethanol plants is as high as it has ever been, primarily because of favourable U.S. governments’ policies.

“It’s a train wreck. Many governments have a lot of unintended consequences,” he said. “I don’t think this was ever intended to happen (the steep rise in corn prices), but it had to come eventually.

“If it wasn’t for U.S. government policy, there probably wouldn’t be a U.S. ethanol industry. It’s totally dependent on getting industry to use it. Tariffs and subsidies are favourable in terms of the ethanol industry using it, so it’s all because of policy,” he said.

More than one-third of the U.S. crop goes to ethanol. While ethanol producers are facing higher corn costs, those have been largely offset by rising gasoline prices that have helped keep ethanol-blending economics positive.

Grier said it is imperative that the upcoming crop is a good one, or there is no telling how high corn futures could go.

“We better hope that this spring is perfect, or you can name your price for corn,” he said. “We’ve had last three or four years as fantastic crops, and it’s still not enough, so if we get anything less than absolutely perfect conditions this spring there will be a huge supply shortfall.”

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