Biofuels push threatens food price spike

NEW YORK (Reuters) - The push for biofuels using materials such as corn threatens to further strain global food stocks, raising chances for a surge in food prices and inflation, strategists said.

The strategists, speaking this week at the Reuters Investment Summit in New York, said fallout from corn use in ethanol production could spell trouble for consumers around the world as corn shortages push up prices of meat, dairy and other staples.

"Already you're seeing the stupidity of turning corn into energy," said Louise Yamada, market technician with Louise Yamada Technical Research Advisors in New York.

"Inefficient use of energy, I find it frustrating because food is an essential."

The United States and China are among countries whose domestic corn prices are rising as grain supplies tighten due to increasing use of corn by fuel ethanol producers.

A recovery in energy demand from emerging markets, under-investment in refining capacity and supply bottlenecks are among factors set to fuel global commodity price increases as a push for biofuels gathers pace, the analysts added.

"We view commodity and food inflation as a problem for real disposable income and consumer spending," Abhijit Chakrabortti, JPMorgan Chase's global equity strategist, told the summit.

He added that a weaker dollar also exerted upside commodity price pressures.

Ethanol-fueled inflation is "a long-time negative for the bond market," said independent investor and author Dennis Gartman. "Unless the Fed chooses to monetize the rise in food prices we'll have a problem," he added.

News earlier this week that China could ask its four authorized fuel producers to gradually shift away from using corn as a raw material served to highlight the sense of growing unease about the outlook for food prices.

China is the world's No. 3 producer of fuel ethanol after the United States and Brazil. Both Beijing and Washington are promoting biofuels, including biodiesel, to cut their nation's dependency on imported oil.

But fearing spikes in domestic corn prices, Beijing has already stopped approving the construction of new corn-based fuel ethanol plants.

"Food-based ethanol fuel will not be the direction for China," Xinhua, the state-owned agency, quoted Xu Dingming, vice director of the Office of the National Energy Leading Group, as saying on Monday.

(For summit blog: summitnotebook.reuters.com/)