UN Unaware Corn Prices are Falling

On Tuesday, the United Nations Food and Agriculture Organization called for a review of “current policies supporting, subsidizing and mandating biofuel production and use” because demand for biofuels, such as ethanol or biodiesel, was leading to “continued upward pressure” on the price of agricultural commodities.

However, commodity prices are falling – and rapidly. Right along with the stock market, corn futures dropped Monday more than 6% to the lowest level in more than 10 months, and the decline continued on Tuesday with corn for December delivery closing at $4.17.

As the old saying goes – the best cure for high prices is high prices – meaning that, basically, what goes up must come down. Corn is getting back down to year ago levels now after hitting around $8 a bushel earlier this year.

However, the new FAO report “The State of Food and Agriculture 2008″ was probably written back when commodity prices were higher, I guess on the assumption that they would just continue to rise.

The FAO report says “The emergence of biofuels as a new and significant source of demand for some agricultural commodities … contributes to higher prices for agricultural commodities in general, and for the resources used to produce them.”

Oddly enough, the report says nothing about the impact of higher biofuel production on oil prices – which are also much lower now then they were earlier this year.