Prices soared in August after weather damage across the Corn Belt led the U.S. Department of Agriculture to predict lower yields than previously expected. Some agronomists and farmers predict yields will be even lower because the heat and drought continued.
All the while, demand for corn seems to be insatiable — the ethanol industry, livestock and export markets can’t seem to get enough. Economists say demand is likely to continue to outstrip supply for some time, keeping grain prices — and the cost of food — high.
This flurry of high corn prices has traders flocking to the commodity, in some ways treating it like the new gold. Traders are speculating on corn prices well into 2013, and there are some bets on corn futures even further out. Money in corn futures is five times what it was in 2004, according to numbers from the Chicago Mercantile Exchange. That’s a nearly $2 trillion market for corn alone.
On his farm outside Des Moines, Iowa, Vernon Flinn recently walked his cornfields with two grain buyers from Heartland Co-op to check on yields. Flinn twisted off an ear of corn to examine how the heat had damaged it.
“This ear is probably 16 rows around, and it looks like probably four-, five-kernel rows right there, and that row is aborted or will not fill," said Flinn, after peeling back the corn husk and counting off the dead kernels along the tip of the corn.
Still, when they measure the ears and count kernels back at the pickup truck, Flinn estimates a crop of about 170 bushels an acre, compared with 153 projected nationally.
Farmers hit by flooding in Missouri and those racked with drought in Kansas are looking at low yields.
But far more acres of corn were planted this year, so even though flooding and drought lowered yield-per-acre estimates, harvest time could still bring good hauls in places that avoided the worst of the weather damage.
But the national corn yield won’t be enough to meet demand, said Iowa State University economist Chad Hart. Demand for livestock feed and from the ethanol industry and the export market continues to outstrip predictions, he said, and that’s why grain prices have soared.
“When you look at last summer, we had corn prices in some cases down around $3.50 a bushel. Now we’re up in $6, $7 range, so we’ve seen nearly a doubling of prices over the past 15 months,” Hart said.
The USDA report suggests that grain prices will stay elevated over the next year or so. Corn stockpiles are nearing a 15-year low — and soybean stockpiles have been tight for at least four years.
And in the last few months, another player has taken a bite out of the U.S. corn market.
“China’s been a very early buyer of the corn crop we’re growing now,” Hart said. “And that’s been something that has the market worked up.”
China bought 21 million bushels from the United States in July, its biggest purchase in 15 years.
Farmers and traders alike are getting pretty worked up over the possibility of $8-a-bushel corn. For consumers, this market frenzy translates into higher food prices. Grocery items that rely heavily on grains — like meat, butter, eggs — are likely to keep going up.
And much of it traces back to corn, which just may be the emerging gold standard of agricultural commodities.
Kathleen Masterson reports for Harvest Public Media, an agriculture reporting project involving six Midwest public broadcasting stations, including KCUR in Kansas City. Harvest is supported through a grant from the Corporation for Public Broadcasting. Go to Harvestpublicmedia.org for more information.