Food/Fuel Reality Check: "Speculative Bubble" Was Real Source of Corn Price Increases Says New Study

OTTAWA, ONTARIO--(Marketwire - Oct. 24, 2008) - A new study by independent forecasting company Global Insight (www.globalinsight.com) concludes that commodities speculation rather than ethanol production was the principal factor in higher corn prices this past summer. Many critics had previously blamed ethanol production for the record price of corn.

"The record high prices were a speculative bubble," said Stewart Ramsey, senior economist for Global Insight, Philadelphia

Source: Reuters, October 23, 2008

Reinforcing the study's conclusion is the fact that the Chicago Board of Trade (CBOT) corn futures reached nearly $8 per bushel this summer. CBOT corn futures currently hover under $4 per bushel.

In fact, even at a time when ethanol production in Canada is growing, and production in the United States remains at record highs, the price of corn on global markets has fallen nearly 50%.

"Ethanol production in Canada is up, and yet the price of corn is now at a more moderate levels. Ethanol cannot now stand as the cause of food prices increases - the facts don't support it," said Gordon Quaiattini, President of the Canadian Renewable Fuels Association. "We have always maintained that record oil prices and speculators were to blame for the increase in the price of food this summer."

In fact, the rise and fall in the price of corn has almost exactly mirrored that of light crude oil in the weeks since early June.