Ethanol, Tequila and Global Inflation

[muck]

From a newsletter I receive...

 

http://www.reuters.com/article/consumerpro...924142520070529

 

Analysis: Given a combination of less plantings and a growing problem of disease, the key ingredient in Tequila manufacture, agave, is at risk of significant drop in production volumes. Aside from the obvious impact that the drop in Tequila production will have on the millions of us that like a good Margarita once in a while, there is a fundamental impact being waged on non-corn farm subsidies because of the volume of crop production being transitioned to corn production. Agave is actually a crop that has experienced a wild fluctuation in global production volume and could use some stability to prop up prices. The underlying fundamental in the price of corn is that "artificial consumption" has been created which doesn't leave a void in the market, but creates broad demand across the farming industry. In other words, typically when demand is affected by some sort of change in a marketplace, there are winners and losers. In this case, as corn prices rise, so does everything else. By lowering our reliance on global fuels, we are actually increasing the cost of many of the items that we purchase (of course, laying aside the benefits of the green element of ethanol for a moment). With demand for oil in China rising (new consumers entering the marketplace), there will also continue to be increases in demand for global oil. So where does it end? We aren't sure that it does. It seems that farmers are now confronted with a huge decision - do they transition to new crops with promises of returns that are better than they have experienced before ... or do they stick with what they know - assuming that demand and prices for those commodities will also rise? These are interesting questions that may not be fully felt until early 2008 (with 2007 being the year of transition). [emphasis added]