Possible effects of bad weather on the US biofuel industry

At the moment, the US biofuel industry seems to follow the classic demand/ supply model when it comes to ethanol fuel prices. The supply of corn, the major constituent of ethanol fuel, has been reduced by bad weather conditions that have ravaged corn crops in the US since springtime. On the other hand, the demand for ethanol fuel is on the rise as oil prices are reaching an all-time high, and the world economies are on the lookout for oil substitutes. What this ultimately translates into is the soaring price of corn, and hence, ethanol fuel. Should bad weather pattern persist, the biofuel industry will find itself in a very dire situation.

Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago admits, “We are on the verge of a disaster if we have adverse weather in July. The death knell scenario is for the rains to suddenly shut off and for us to go into a hot, dry pattern, which would significantly hurt corn yields."

The makers of biofuels consider the possibility that future ethanol supplies will be derived from materials like switchgrass or wood chips that are resistant to bad weather.