Ethanol’s Ripple Effect

by | Apr 3, 2007 | Stock Market Comments

The US government has been subsidizing the research, development and use of ethanol. This is being done in an effort to provide an alternative solution to importing costly oil and gas for use here in the United States.

Some day, ethanol might be a great alternative.  However, it is having a “ripple effect” in the economy.  This is from the Daily Herald, a paper in suburban Chicago, on March 11, 2007:

The Department of Agriculture said recently that strong demand for corn from ethanol plants is driving up the cost of livestock and will raise prices for beef, pork and chicken.  Meat and poultry production will fall as producers face higher feed costs, the department said in its monthly crop report.

Ethanol fuel, which is blended with gasoline, is consuming 20% of last year’s corn crop, and is expected to gobble up more than 25% of this year’s crop.

The price of corn, the main feed for livestock, has driven the cost of feeding chickens, up 40%, according to the National Chicken Council.  The council says that chicken, the most popular meat with consumers, will soon cost more at the grocery store.  The industry worries the competition from ethanol could cause a shortage of corn.

The average price of corn, unchanged from last month, is $3.20 per bushel, up from $2 per bushel last year.

That is a 60% increase in the price of corn in one year.
This is Economics 101. There is far too much demand for corn.

You would think that the corn charts would be skyrocketing.
But they have already made a significant move. However there are other areas where this news can possibly put money in your pocket.

P.P.S There have been more reports over the past few days that the “plantings” for corn are up tremendously, compared to last year. Sounds nice, but it’s not what you plant, it’s what you grow (and ultimately harvest) that really matters.  A few dry weeks(no rain) in late June-early July could do a LOT of damage.


Thomas Mullooly
Mullooly Asset Management LLC
Our Only Business Is Fee-Only Investment Advice

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