Sunday, July 22, 2007

Corn Price volatility is a ticking time bomb

The geniuses in Congress have chosen to mandate fuel production from a food commodity that is historically very volatile. The next downturn in corn production will mean huge increases in food prices. The politicians better be preparing some good excuses because they will need them.


A recent analysis by University of Illinois Professors Darrel Good and Scott Irwin notes that over the last half-century, corn-production shortfalls as big as 30% are not that uncommon. Very inelastic demand means that having a stable, reliable source for fuel is a very high priority for consumers. Having the supply for such a commodity depend on something as volatile as U.S. corn production does not seem like such a brilliant idea.