The price of corn has become tied more and more to the ups and downs of oil prices and oil companies' increasing appetite for ethanol, according to a report released Tuesday by the United Nations.  

“The historic linkages between agriculture and the energy sector are becoming stronger and are changing in character,” according to the report, by the U.N.'s Food and Agriculture Organization. “Biofuel demand will continue to exercise upward pressure on agricultural prices for considerable time to come.” 

The relationship between corn and oil has been slowly tightening for the last decade according to Vic Lespinasse, an analyst with Chicago-based GrainAnalyst.com. “It’s only been in the last several years that crude oil prices have exploded, and that really increased the demand for biofuel.” 

He noted that “[Ethanol] is a huge a part of the demand picture for corn,” and that government mandated ethanol usage in gasoline has also contributed to rising demand. 

Bill Nelson, a grain analyst for Wachovia Securities LLC, said that for the price of corn, oil prices are “a deciding factor, on the margin.”

In fact, “Growing demand for liquid biofuels is only one of several factors underlying the recent sharp increases in agricultural commodity prices,” the UNFAO report said. However the report added that “The exact contribution of expanding biofuel demand to these price increases is difficult to quantify.”

Mark Lambert, spokesman for the Illinois Corn Growers Association, said oil’s influence on corn is indirect if it exists but noted that oil is “probably the largest factor in [corn farmers’] operations.”

“The industry is a large energy user as well as a large energy producer,” Lambert said, noting that diesel and petroleum-based fertilizer are large expenses to corn farmers.

Ethanol became controversial early this year after concerns arose that diverting corn and other grains to its production raises food costs. Industry groups argued that ethanol’s role in reducing fuel costs has a more substantial impact on consumers pocketbooks.

But increases in the cost of food ingredients may have only a small impact on grocery store prices. In May, United States Department of Agriculture Chief Economist Joe Glauber reported that the value of food ingredients is only about 20 percent of the price the consumer pays for food products, with the rest going to labor costs, advertising, energy costs and other expenses.

A 2007 report from the United States Department of Agriculture found that in 2006, 14 percent of corn grown in the United States was converted to ethanol. The figure is projected to rise to 31 percent by 2016.

According to Renewable Fuels Association statistics, domestic ethanol production increased more than 20 percent from January to July of this year.

The last two quarters have been a volatile period for both corn and oil. December corn futures closed at $4.20 per bushel Tuesday on the Chicago Board of Trade, down 47 percent from $7.96 per bushel in June 27.

November light sweet crude oil closed Tuesday on the Chicago Mercantile Exchange Inc.-owned New York Mercantile Exchange at $90.05 per barrel down 39 percent from its July 11 peak of $147.55 per barrel.

Analysts also point to other factors in corn’s recent volatility, such as increased export demand, weather and investment activity.

According to Nelson, speculators have been selling their commodities positions in response to the economic turmoil of the last quarter “to get more cash and feel less exposed to the market in general.”

Nelson said that prior to the third quarter, speculators had been steadily been funneling more money across the commodities market, which helped support prices.