The explosive growth in ethanol plants in the Midwest United States may mean that much of America's corn currently sent for export will stay at home, marking a profound shift in U.S. commodity markets.

Indeed, if a quarter of proposed Midwest ethanol plants come into production, up to half of the corn grown in these states which is now exported could be diverted to domestic ethanol production, according to a new report from the Institute for Agriculture and Trade Policy (IATP).

"Over the last few decades, U.S. farm policy has driven over-production in a few commodities in order to increase exports," said Mark Muller, co-author of the study Staying Home: How Ethanol Will Change U.S. Corn Exports. "We are entering a new era, where domestic uses are more important drivers of commodity markets."

Also commenting on the rapid growth in fuel ethanol distilleries, the Earth Policy Institute warned this month that food prices will be affected.

"As the world corn price rises, so too do those of wheat and rice, both because of consumer substitution among grains and because the crops compete for land. Both corn and wheat futures were already trading at 10-year highs in late 2006," writes Lester Brown of the Earth Policy Institute (see: Distillery Demand for Grain to Fuel Cars Vastly Understated: World May Be Facing Highest Grain Prices in History).

A recent report from the Global Subsidies Initiative, the publishers of this newsletter, said that U.S. government support toward biofuels, including generous subsidies, has been a major driver of growth in the sector. The report, Biofuels: At What Cost? - Government Support for Ethanol and Biodiesel in the United States, estimates that subsidies to biofuels are currently between $5.5 billion and $7.3 billion a year.