Crops used in the ethanol making process are becoming increasingly correlated to the price of crude oil. Crops like Corn, Soybeans, and Rice rise and fall with the price of Crude Oil. In particular is Corn. Demand for it is increasing at the same rate as sugar yet Sugar prices are not seeing the same price increases.
A lot of this has to do with sugar stocks and the type of crop. Sugar supply is not nearly as constrained as Corn crops. An analyst for F.O. Licht stated, “Projected stocks-to-use ratio for corn is 13.1% in 2007-08, but 54.8% for sugar. This represents the leftover stock for the base of next years as a percentage of total demand. Sugar has nearly four times as much carryover stock. Moreover, corn used in Ethanol production is increasing far faster than Corn further driving up the price of Corn.”
Corn unlike Sugar is also much more of a staple food forming the base of many traditional diets. This not only raises the demand of an already constrained crop, it also gives way to food for ethanol. Many are worried about the impact of trading food crops for Ethanol and the damage this could cause.
In the US, corn also competes for acreage that is becoming quite scarce. However, in Peru where Stratos grows its sugar, the land is readily available. All of this gives Stratos a major competitive edge in the Global Ethanol market. Because sugar prices are staying so low, they have an excellent arbitrage opportunity creating Ethanol and selling it at the World price, making it easy to see how they will become the Low cost Global leader in Sugarcane Ethanol.
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