U.S. should be flexible in ethanol mandate during drought
Corn stalks are being disked under as the extensive drought in the corn belt causes concern over the United States government’s ethanol mandate.
Cargill, a giant grain trading entity, has asked the U.S. government to temporarily curb the ethanol quotas, noting that the company expects a drop in global corn production.
“With the global corn crop expected to fall about 3 to 4 percent below trendline norms as the worst drought in over half a century decimates the U.S. harvest, anyone who consumes corn will be forced to begin cutting back,” Cargill CEO Gregory Page said.
The worst U.S. drought in more than 50 years has reduced corn production by as much as a one fourth when compared to spring forecasts. It has also renewed the debate over a federal policy to use a growing amount of corn as fuel for vehicles.
Under the current federal policy, 10 percent of the gasoline supply in this country must be made up of ethanol for 2013. (A 15 percent blend had been proposed.)
That drove up the cost of gasoline at the pump by an estimated 5.1 percent in July, at the peak of vacationing Americans. Speculation on the price of corn has sent futures for the commodity through the roof. Add to that the oil speculation due to tensions in the Middle East, and the Chinese purchase of a Canadian oil sands company, and consumers should expect to pay higher prices in coming months.
Corn prices were at $8.13 a bushel on Tuesday before falling back to $8.05 later in the day. Oil was at $87.91 a barrel. Unleaded gas was trading at $2.77 a gallon wholesale for September delivery.
What does all this mean for consumers?
Expect to pay more for gas at the pump. Higher prices should be anticipated for groceries. And, look for a drop in consumer confidence, something that is inevitable with workers making less and forced to spend more for essentials.