Cut Biofuel Ouput -- UN Tells U.S.

Corn needs to be used for food not fuel due to drought.

The head of the UN's Food and Agricultural Organization urged the United States to halt its biofuel output to prevent a food crisis, in an editorial published by the Financial Times on Friday.

"An immediate, temporary suspension" of a mandate to reserve some crops for biofuels "would give some respite to the market and allow more of the (corn) crop to be channeled towards food and feed uses," Jose Graziano da Silva wrote.

A severe drought in the United States has cut likely corn production to the lowest level in six years, the U.S. Department of Agriculture reported on Friday.

A USDA report released on Monday estimated that only 23% of corn plants are in good to excellent condition.

"Against that backdrop, cereal prices have shot up, with an increase in (corn) prices of almost 40% since June 1," strategists at the CM-CIC brokerage said.

According to the U.S. National Oceanic and Atmospheric Administration, the country has just sweltered through its hottest July on record, with drought affecting 63% of its continental territory.

Biofuels have been repeatedly identified as a factor in rising prices for vegetable oils, corn, soja and cereals.

Responding to the  Graziano da Silva’s comments, the Global Renewable Fuels Alliance took the position that "any action to reduce or eliminate the RFS would be premature and have immediate consequences in lost jobs and an increased reliance on crude oil imports."

"The flexibility of the RFS and the market are the most effective way of reducing demand for corn during these difficult times," the group said. "Already we have seen U.S. ethanol production curtailed by 14% this year while refiners are sitting on 2.6 billion RFS credits that can be used to meet their compliance obligations. This market flexibility combined with large ethanol stocks makes the waiver of the U.S. RFS unnecessary.

Globally, total grain output is expected to drop by 2.9% this year, but this global production is still expected to be the second largest in history with grain ending stocks 4% above the 10 year average. It is also worth noting that the U.S. ethanol industry will use only 2.9% (net) of the world grain supply. In short, any calls for the indiscriminant waiver of the U.S. RFS this year is unjustified.”

Copyright Agence France-Presse, 2012, IW Staff

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