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US drought: Gasoline prices rise as corn stalks shrivel

The price of gasoline has gone up 16 cents this month, the AAA says. The drought is hurting corn yields, raising the price of ethanol, which makes up 10 percent of each gallon of fuel.

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Cobs of drought-damaged corn are pictured near Kewanee, Illinois on July 26. The price of gasoline is rising as the corn stalks are shriveling in the Midwest.

Karl Plume/Reuters

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The price of gasoline is rising as the corn stalks are shriveling in the Midwest.

Since the beginning of July, the price of gasoline has risen about 16 cents a gallon, according to AAA. Energy analysts say at least some of that rise can be attributed to the severe drought scorching the Midwest plains because about 10 percent of each gallon of fuel is made from ethanol. One of the main ingredients of ethanol is corn.

Because of the drought, the price of corn has soared. It is now just under $8 a bushel, up about 23 percent on the year and up 39 percent over the past five weeks. Reflecting the rising price of corn, the price of ethanol on Chicago’s futures market is up about 11 percent since the beginning of July.

“A good soaking rain in the corn belt would help with the price of ethanol,” says Avery Ash, manager of regulatory affairs at AAA in Washington.

Ironically, the price of ethanol rose last year as well, but because of flooding in the Midwest. Because of relatively high corn prices, the price of ethanol peaked about 50 cents a gallon higher than current prices. However, a special federal tax credit helped bring down the cost for refiners. That tax credit has now expired.

The high price of corn is not the only factor in the rising price of gasoline, says Sander Cohan, a principal at Energy Security Analysis, Inc. in Wakefield, Mass. Rising tensions with Iran has bolstered world oil prices since about 17 percent of the world’s traded oil passes through the Straits of Hormuz. The Iranians, facing increasing hardship because of oil sanctions, have practiced war games in the Straits and the US has increased its naval presence there.

On Friday the price of crude oil on commodities markets was up about 75 cents a barrel to over $90 a barrel, up about $10 a barrel over the last month.

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