Thursday, February 12, 2009

Ethanol vs. Food (Finale)

Ok, so the real question becomes: "In the absence of high oil prices, what happens to corn price/ethanol?" Well, here ya go:

The corn (orange) and oil (blue) do in fact follow each other quite well as suggested by studies previously cited. But look at the period after November 2008. The divergence is telling. These data suggest that while ethanol is, at the margin, driven by oil, the RFS does place a floor on corn price. If you look back at the stocks-to-use graph in part 1 below, the floor seems to be somewhere in the $3-$4/bushel range. If this is, in fact, a consistent relationship, one can safely say that the RFS is having significant effects on corn price over-and-above the other cited issues. This result would imply that, via feed and food ingredients, the RFS is having an impact on food prices.