Locking up supply for the dot-corn boom

Fortune magazine recently published an article on the so called "dot-corn boom", a mixture of surging corn prices, crop speculation, agricultural growth and other elements.

Corn, as the raw material to produce ethanol, is generating incredible speculation and its price has more than double in the past year. There is of course a debate on how the increase of plantation usage for fuel purposes will in fact create more hunger or drive common food prices up. In fact, in the US, more than 15,000 food products are introduced every year, and a lot of them are corn based.

But more important, is the fact that corn is the basic input of ethanol, and growing cost-efficiently is necessary for the alternative fuel proposal to work. As corn prices rise, ethanol becomes a less attractive fuel alternative, which is in fact what is happening. The current margin on ethanol is a mere 3 cents per gallon, and global production isn't up to the levels where volume is making up for margin.

This is where locking up supply comes in. There are a few places on earth where Corn can be grown cheaper than in the US, and biofuel companies need to lock up some supply. These places might include the "Cauca Valley" in Colombia, the only place in the world where sugar cane grows year round, and where many growers are switching to corn. You could also look at northeastern Australia, where the sugar cane industry is significant, as they are in a good position to supply the fuel-thirsty southeast Asia. Several countries in Central America, with easy sea access and not to rugged terrain are also candidates, such as Honduras for example. Brazil has of course the largest growable terrain in South America... but you knew that already.

South America could be part of the dot-corn boom. It is in a good position to stabilize the price increase and bring in some FDI that South American countries with largely based agricultural economies could use.