BioEnergy & World Commodity Markets Chris Hurt Purdue University June, 2008 hurtc@purdue

BioEnergy & World Commodity MarketsChris Hurt Purdue UniversityJune, 2008hurtc@purdue.edu Department of Agricultural Economics Purdue University

In the past two years PRICES of many basic food commodities have SURGED! Department of Agricultural Economics Purdue University

Other Commodities as Well Department of Agricultural Economics Purdue University

Rapid World Economic Growth Weak Dollar Ethanol

Department of Agricultural Economics Purdue University

Has Surging Food Demand in Developing Countries Cause the High Food Commodity Prices? China? India? Department of Agricultural Economics Purdue University

Dollar Depreciation Department of Agricultural Economics Purdue University

45% Depreciation of the Dollar Since 2002 Department of Agricultural Economics Purdue University

60% Appreciation of the Euro Since 2002 Department of Agricultural Economics Purdue University

Purdue University Estimate Department of Agricultural Economics Purdue University

Importance of World Biofuels Growth Department of Agricultural Economics Purdue University

When stocks get tight we see additional behaviors: • Protection of internal food supplies • Hoarding • Sellers less willing to offer products • Sheer speculative buying behavior in futures and cash markets Department of Agricultural Economics Purdue University

If all food was gone and there was only One Big Mac remaining, WHAT IS ITS AUCTION VALUE? With only one sandwich left, WOULD IT BE A ORDERLY AUCTION? Department of Agricultural Economics Purdue University

Haiti Mexico Philippines Argentina Department of Agricultural Economics Purdue University

U.S. % World Exports 2007 Sorghum 76% Corn 66% Soybeans 39% Cotton 37% Wheat 32% Rice 10% Source: FAO, United Nations Department of Agricultural Economics Purdue University

So: • Surging oil prices and the weak exchange rate of the dollar are primary forces pushing commodity prices higher • Biofuels have been large new demands • High oil and a weak dollar means high corn and soybean prices • Grain prices are now attached to energy markets • In the U.S., one of the factors we have some control over is biofuels policy • A broader examination of how biofuels impacts food and fuel consumers and the environment around the globe is warranted Department of Agricultural Economics Purdue University

6. U.S. agriculture has been a highly productive sector that has generally been characterized by surplus production and low farm and food prices 7. For nearly a century government policy has generally tried to constrain production, and stimulate demand 8. The ag sector is so highly productive it should be given time to work through the current tight stocks situation and stimulate production. 9. There is a huge amount of promise for fuel production from agricultural lands and forest 10. Much of that research is underway 11. We must not stop continue to support this large body of work 12. But we must balance food and energy Department of Agricultural Economics Purdue University

BioEnergy & World Commodity Markets Chris Hurt Purdue University June, 2008 hurtc@purdue