Corn hits $6 a bushel as supply falls off
Posted on Friday, April 4, 2008
NEW YORK — Corn prices jumped to a record $ 6 a bushel Thursday, driven higher by an expected supply shortfall that will only add to Americans ’ growing grocery bill and further squeeze struggling ethanol producers.
Corn prices have shot up nearly 30 percent this year amid dwindling stockpiles and surging demand for the grain used to feed livestock and make alternative fuels including ethanol. Prices are poised to go even higher after the U. S. government this week predicted that American farmers, the world’s biggest corn producers, will plant much less of the crop in 2008 compared with last year.
“It’s a demand-driven market and we may not be planting enough acres to supply demand, so that adds to the bullishness of corn,” said Elaine Kub, a grains analyst with DTN in Omaha, Neb.
Corn for the most actively traded May contract rose 4. 25 cents to settle at $ 6 a bushel on the Chicago Board of Trade, after earlier rising to $ 6. 025 a bushel — an all-time high.
Worldwide demand for corn to feed livestock and to make biofuel is putting enormous pressure on global supply. And with the United States expected to plant less corn, the supply shortage will only worsen. The U. S. Department of Agriculture projected that farmers will plant 86 million acres of corn in 2008, an 8 percent drop from last year.
In Arkansas, corn acreage is expected to fall 20 percent to 490, 000 acres this year.
Experts say reasons include high fertilizer costs, higher prices for other crops and crop rotation.
Moreover, cold, wet weather in parts of the Corn Belt may force farmers to delay spring planting, potentially sending prices even higher.
While corn growers are reaping record profits, U. S. consumers can expect even higher grocery bills — especially for meat and pork — as livestock producers are forced to pass on higher animal feed costs and to reduce their herds.
“Higher corn prices [are ] going to affect meat prices. If you’re feeding with $ 6 corn, you’ll definitely have some [cost ] pressure,” Kub said.
In addition, corn and corn syrup are used in an array of products, meaning the price of everything from candy to soft drinks will eventually go up, analysts say. It’s the latest dose of bad news for U. S. consumers, who are already struggling with higher food costs from record increases in the price of wheat, soybeans and other agriculture products.
Gene Simpson, a professor of agriculture economics at Auburn University at Auburn, Ala., said the rise in corn prices will certainly cause consumer prices to increase.
He said poultry companies paid about $ 230 per ton of chicken feed in February, up from about $ 130 in February 2005. In the same period, the feed cost per pound of meat increased to 21. 27 cents from 13. 42 cents on farms in the Southeast.
“For agriculture to stay in business and sustain what they have, those costs are going to have to be borne by somebody, and the next person in the chain is the consumer,” Simpson said in a telephone interview.
Another loser in higher corn costs is ethanol producers, who are struggling to squeeze out gains as corn’s record-setting run outpaces the price of ethanol, currently around $ 2. 50 a gallon.
“For years, corn was cheap and fermentation processes for ethanol production came to completely dominate the biofuel industry in North America,” Michael Jackson, president and chairman of Vancouver-based ethanol maker Syntec Biofuel, said this week. “Now, with corn prices well over $ 5 a bushel, corn ethanol economics have gone out the window.” The nation’s 147 ethanol plants now have the capacity to produce 8. 5 billion gallons of fuel a year, according to the Renewable Fuels Association. Corn is the basic material for most of the plants, and about 20 percent of last year’s 13 billion bushel corn crop was consumed by ethanol production. That percentage is expected to increase to 30 percent for the next crop year, which ends Aug. 31, 2009, according to Terry Francl, a senior economist for the American Farm Bureau Federation.
There are still plans to build or expand another 61 plants, which will add about 5. 1 billion gallons of capacity. However, as corn prices have climbed over the past year or so, construction of several plants has been halted or delayed, shaving about 500 million gallons worth of capacity off the original figure, according to Broadpoint Capital analyst Ron Oster. Information for this article was contributed by Lauren LaCapra of The Associated Press and David Irvin and Toby Manthey of the Arkansas Democrat-Gazette.
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online
