Iowa floods raising price of corn
Posted on Wednesday, June 18, 2008
Corn futures spiked this week on news that floodwaters washed over the vast farmlands of the Corn Belt, putting extra pressure on meat processors, ethanol producers and other grain buyers.
The price of December corn futures closed at $ 7. 76 a bushel Tuesday on the Chicago Board of Trade, up from $ 5. 92 in May. Prices may fall this year, but farm analysts don’t expect a return to the $ 2 corn prices seen in the late 1990 s.
This “new plateau” of grain prices — as many analysts are calling it — is bad news for Tyson Foods Inc., the nation’s secondlargest poultry processor. As the price of corn and soybeans goes up, so does the cost of feeding chickens and hogs.
The cost of producing soft drinks, cereals and ethanol also increases, since these products rely heavily on corn.
In the past, food manufacturers absorbed spikes in commodity prices to retain market share, but that may not be possible this time.
“With this latest leg up in feed prices, the concern is that is going to trigger some cutback in livestock and [meat ] production, and that will eventually show up in higher retail prices,” said Darrel Good, an agriculture professor at the University of Illinois at Urbana-Champaign.
That could happen within the pork and beef sectors, too, as ranchers and feedlot operators sell herds early. Cattle futures rose to their highest in two decades Monday, Bloomberg News reported.
In addition to the higher corn costs due to the floods, Tyson faced rising waters at its Columbus Junction, Iowa, pork plant this weekend.
Workers built dikes and used sandbags to protect the plant but area roads were flooded. The Springdale meat processor shut down production at the plant, which has the capacity to slaughter 9, 000 hogs a day. Pork output is scheduled to resume Friday.
Since corn prices began to rise significantly in 2006, meat production and supplies have stayed strong. But with sustained upturns in corn and soybean prices, consumers should expect higher food prices as processors cut back output.
What’s uncertain is when that will happen, Good said.
Analysts are revising their food inflation numbers to match the environmental factors affecting the commodity markets. While many previously estimated yearly food inflation at 5 percent or 5. 5 percent, estimates now range from 6 percent to 8 percent.
A report released this month by Advanced Economic Solutions, a contract commodity analysis firm in Omaha, Neb., stated consumers should expect annual food inflation of 9 percent through 2012.
Bryce Knorr, senior editor of grain industry publication Farm Futures wrote Monday that the nation’s corn crop could be diminished by as much as 500 million bushels this year because of the Midwest flooding.
In an editorial on the compa- ny’s Web site, Knorr estimated that 3. 3 million acres likely won’t be planted because of the rain.
The U. S. Department of Agriculture reported Monday that the condition of the corn crop is worse this year than last. Fortythree percent of emerging corn was rated as very poor, poor or fair in the 18 states surveyed last week. That number was 30 percent for the same period of 2007.
The reduction of corn production and quality has been exacerbated by already low corn stocks, domestic ethanol production and high export demand.
On Monday, the Environmental Working Group, a Washington nonprofit focused on conservation, released a report criticizing the government’s ethanol policy as based on “hope” for good weather. “However, hope is not a policy. And it now seems likely that some of the worst weather since the historic 1993 flood will mar the 2008 growing season,” wrote Michelle Perez, an analyst with the environmental group. Perez contends that subsidizing the domestic biofuel industry puts corn supplies perilously close to a breaking point, and bad weather compounds the problem. The government mandates that oil companies blend 15 billion gallons of corn-based ethanol by 2015. It’s a progressive mandate, and this year the industry must blend 9 billion gallons.
The Renewable Fuels Association, which represents the domestic industry, said the effect of the floods on ethanol production is uncertain. However, president Bob Dinneen denounced groups calling for the end of subsidized ethanol production. “Knee-jerk reactions to this unprecedented weather event would do even more harm to the nation against the backdrop of the current oil and economic crises it faces,” Dinneen said in a statement Tuesday. “Abandoning our commitment to ethanol and biofuels, as some would suggest we do, would do nothing to provide meaningful relief from high grain prices today or in the future.” Companies like Tyson and Texas-based Pilgrim’s Pride Corp., the nation’s largest poultry company, have blamed a large part of corn inflation on domestic ethanol production. Corn traded for about $ 1 a bushel from World War II through the 1970 s. Early that decade, the price of corn tripled and food inflation reached 12 percent to 14 percent a year, Good said. “So far the food price inflation has been pretty modest compared to that experience,” Good said.
To contact this reporter: dirvin@arkansasonline. com
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