Food crisis will drive up the price of ethanol

The U.S. investment bank Morgan Stanley believes that we have a food crisis. An especially raging summer in the US, droughts and forest fires in countries including Brazil and Russia and heavy rain in Europe and Canada have hit many grain and oilseed crops this year. The demand for grain will probably drive up the price of ethanol.

Grain Shortage drives up the price of ethanol. Ulf Svahn the Swedish Petroleum Institute warns that.
ethanol price will increase because of the grain crisis, writes di. se. He told the Swedish newspaper that wheat and corn situation will definitely drive up prices.

Together, Brazil and the United States about 80 percent of the world market and the use of ethanol is expected to increase. The US Department of Agriculture predicted that the country's stocks of corn would halve to their lowest levels in 14 years. A sharp shortfall in the U.S. Department of Agriculture's corn production forecast also helped set prices soaring around the world. During the last grain crisis of 2008 ethanol prices rose sharply. The reason that time was major crop problems in Brazil.

Wheat Yields in Europe, primarily Ukraine and Russia are genuinely bad. Earlier this year, said Russian Agriculture Minister Yelena Skrynnik said that the drought was the reason that 32 % of Russia's grain harvest is now degraded. The Russian forest fires have also ruined large areas.

Still, investors should be cautious because commodity prices are known to be highly volatile and difficult to put a price on. Large importers in the Middle East and North Africa have started to hoard supplies, which has further tightened the market. Prices for farming commodities spiked so much on Oct. 8 that they triggered daily movement limits on the Chicago exchange. Options markets saw prices for commodities like corn zoom more than 13 % during the day following reports of supply shortages around the world. U.S. corn crop outputs would come in 4 % short of prior ideas and sink to their lowest levels in 14 years, the US Agriculture Department said.