Reasons behind the variations in primary commodity prices - Essay Example

As noted by Donald(5), although there has been a gradual downward trend in the prices of real commodity in the last decade, this has little policy concern since it is insignificant and ruled by the price variability. The volatility has had more effects; it has made a policy change to changes in primary commodities more complicated for both consumers and producers (Lichts. pp. 34). United States joined the league of ethanol producers in the year 2005. The ethanol production increased significantly.

According to the Lichts (pp. 36) ethanol production in US was estimated to be 52.6 billion liters in 2011which was an increase from 49.2 billion liters in 2010 and up from 6.17 billion 2000. The statistics show how the US has grown to be a major producer of ethanol. In fact, United States and Brazil accounted for 87.1 % of the world ethanol production in 2011. The fact that ethanol meets renewable energy needs makes it a popular commodity in both countries (Association pp. 10). Ethanol production has been projected to continue to grow significantly over the subsequent years.

This followed a policy by the Energy Independence and Security Act of 2007 which required US to have at least 36 billion of renewable energy by 2022. There are two major sources of ethanol in US: the corn and the cellulosic feedstocks ranging at 15 % and 16 % respectively. Historically, most of the ethanol produced in the US has been produced from corn (Micola pp28). Despite the success of ethanol as alternative energy source, there has been a concern about its source that is mainly corn. In the effort to increase ethanol production, a large tract of arable land has been converted to corn farming denying other farming activities an opportunity.

Besides, corn production has had a big impact on the production and supply of the grains affecting even international prices. According g to the statistics, the prices of primary commodities have verified over