Ethanol Notes Today

About 25% of U.S. corn is turned into ethanol, according to U.S. Agriculture Department estimates, and corn futures have risen 70% in the past year and hit record highs on increased demand to use the grain both as food and fuel.

In December, Congress passed an energy bill that mandates increasing ethanol production to 36 billion gallons a year by 2022 from 7.5 billion gallons in 2012.

Analysts estimate about 10% of ADM profits this quarter came from ethanol.

The American Farm Bureau Federation and other farm groups plan to defend government support for ethanol, which they say has helped lower gas prices,

Trade groups such as the Grocery Manufacturers of America, meanwhile, argue that increased production of corn for ethanol has driven up prices for corn, wheat and other grains. Those increases, in turn, have boosted prices for bread, meat and dairy products. The Grocery Manufacturers of America say that while Congress may be able to control the weather, it should scale back government-mandated ethanol production requirements. Those incentives, they argue, are causing farmers to plant corn rather than wheat and other grains. "Certainly, reducing the amount of corn (for energy purposes) would have an immediate impact on commodity prices and ultimately on the price of processed foods," said Scott Faber, vice-president of federal affairs for GMA.

The IFPRI, a think tank supported by governments and private foundations, also concluded that 30% of the rise in food prices between 2000 and 2007 is due to increased production of biofuels.

On Monday, Sen. Kay Bailey Hutchison, R-Texas, proposed freezing the ethanol mandate at current levels to reduce ethanol's impact on world food prices.

"Our models analysis suggest that if a moratorium on biofuels would be issued in 2008, we could expect a price decline of maize by about 20 percent and for wheat by about 10 percent in 2009-10. So it's this significant," Joachim von Braun, heads of the International Food Policy Research Institute, told reporters in a briefing.