Biofuel investors find themselves jumping in the deep end.
*** Biofuel companies want subsidies because grain prices are rising ***
High grain prices are threatening the nascent biofuels industry,
raising input costs and making the fuel less economic compared with oil.
Agricultural commodity prices have reached long-term highs in recent days, based on forecasts of hot and dry weather conditions this year in the US which could result in lower grain yields. This comes after oil prices have fallen by a quarter from their record peaks last year.
Corn prices reached another 10-year high yesterday for the second successive day when they touched $4.31 a bushel, up five cents. But the doubling of the price of corn, a main feedstock for US ethanol producers, over the past year at a time when oil prices are at the same level they were 12 months ago has raised questions over the viability of the biofuels industry without heavy government support.
High grain prices create problems for biofuels companies which
produce ethanol from wheat and barley. Other biofuels companies make biodiesel from oil-bearing crops such as soya, peanuts, palm oil and rapeseed. The prices for most of these commodities have also risen sharply, reflecting strong demand for these crops as food and additional demand from the biofuels industry.