Weather plays larger role in global fuel prices
The record storms and floods that swept through the U.S. Midwest last month struck at the heart of the corn-growing region, drowning fields and dashing hopes of a bumper crop.
They also brought into sharp relief a new economic hazard. As the world grows more reliant on crops like corn and palm oil for its fuel supply, it is becoming vulnerable to the many hazards that can damage agriculture, ranging from droughts to plagues to storms.
The U.S. floods have helped send the price of ethanol there up 21 percent since the beginning of June. They appear to have had little effect on the price of gasoline at the pump, as ethanol represents only about 6 percent of U.S. transport fuel today.
But that share is expected to rise to at least 20 percent in coming decades, similar to a broad global trend toward increased use of biofuels. Experts fear that a future crop failure could take so much fuel out of the market it would send prices way up. Eventually, the cost of filling a fuel tank could depend as much on hail in Nigeria or a plant fungus in Malaysia as on oil-pipeline bombings in Nigeria.
"We are holding ourselves hostage to the weather," said John Reilly, a senior lecturer at the Massachusetts Institute of Technology and an ethanol expert. "Agricultural markets are subject to wide variability and big price spikes, just like oil markets."
http://www.iht.com/articles/2008/06/30/business/weather.php
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