Commodity Trade Biography
The recent rise in commodities prices has also unveiled some other troubling developments in the food vs. fuel debate. The introduction of bio-fuels as a demand for agricultural crops has led to an increasingly tight relationship between energy prices and food prices; since higher oil prices mean that bio-fuels will be more profitable, higher oil prices lead to increased demand for bio-fuel crops and hence increased prices. At oil prices above $50, each percentage point increase in oil prices results in a 0.9 percentage point increase in corn prices. [3] There is a similar but less pronounced effect for wheat and soybeans.
In conclusion, research suggests that the increase in demand for agricultural crops resulting from bio-fuel production has had a significant effect on crop prices. While studies disagree on the extent of this effect, it is clear that bio-fuel demand played a role in the run-up of commodities prices earlier this decade, and results in some embedded premium in the prices of related crops, such as corn.
© Bryan Chan. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
Commodity Trade
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