E.P.A. ethanol move fuels volatility fears
BakingBusiness.com, October 20, 2010
by Josh Sosland

Marketing prowess are not words that come to mind when thinking about the federal government, a shortcoming evident once again last week. On Oct. 14, the Environmental Protection Agency said it would allow the sale of gasoline containing 15% ethanol for cars made in the 2007 model year and later.

Considering the tight supply and demand situation for corn in recent years, the announcement would have drawn howls of protest from the baking industry and other food ingredient buyers under just about any circumstance.

Coming only a few days after the U.S. Department of Agriculture blindsided markets with sharp downward revisions in the 2010 corn crop estimates, the E.P.A. decision was perceived by some as pouring salt into the wound.

The corn report and its effects were hardly commonplace. The news triggered a stunning commodity price rally. Standard patent flour prices were up $2.30 a cwt the week of the announcement, a weekly price increase eclipsed only twice in the past decade.

Flour buyers generally were well positioned ahead of the price surge, with considerable forward coverage. Still, the corn “surprise” followed by the E.P.A. announcement were valuable reminders of the extreme volatility ruling in agricultural commodities, a situation unlikely to change in the foreseeable future.