Corn Cuts to Hit Home at the Supermarket
A sharp reduction in the corn harvest this year will squeeze consumers further at the grocery store and spark more criticism over using corn to make biofuel instead of food.
"It's our worst fears coming to pass," said Gregg Doud, an economist for the National Cattlemen's Beef Association.
Doud said that higher corn prices would initially have more impact on eggs and dairy products, followed by poultry and pork.
Beef prices would also be affected but over the longer term.
A drop in corn production combined with federal mandates backing ethanol production will result in "massive increases" in food prices, said Scott Faber, vice president for the Grocery Manufacturers Association.
"Americans are already feeling the pressure of Congressional food-to-fuel mandates: in fact, food prices are rising twice as fast as inflation, placing significant pressure on American families who are already suffering from economic uncertainty," he said in a statement.
US farmers are expected to slash corn plantings by 8 percent this year to 86 million acres, according to the Department of Agriculture's annual planting intentions survey released Monday.
While soybean plantings rose as farmers devoted more acres to that lucrative market, the reduction in corn acreage raised fears of further pressure on world food prices.
Corn closed mostly higher on the Chicago Board of Trade after rallying to a record high at $5.88 per bushel amid concern worldwide "agflation" could accelerate.
Livestock producers globally are in the market for more corn even as more grain is diverted to produce biofuel in the United States.
Rick Tolman, chief executive of the Corn Growers Association, said he had expected a reduction in corn acreage because higher fertilizer costs make the switch to soybeans economical.
But he was surprised at the low number of corn acres, which some estimates say could shrink the corn crop to 12.2 billion bushels this year from 13.07 billion bushels last year. USDA also noted that the corn supply on March 1 totaled 6.859 billion bushels, well below most estimates.
Ethanol, Weather to Play a Role
Eli Lustgarten, an analyst with Longbow Research, said the drop in corn acreage could be partly due to "uncertain economics in the ethanol market."
As more ethanol producers come online, he said, profits could be squeezed because of "real uncertainty with the high input price of corn and the inability to distribute ethanol."
The USDA expected U.S. farmers to sow a near-record 74.8 million acres of soybeans this spring. Prices and weather could be driving the rush into soybeans.
"We're also having a very wet, late spring. And wet springs tend to delay plantings and delayed plantings you tend to shift from corn to soybeans, Lustgarten said.
Matt Hartwigg, spokesman for Renewable Fuels Association, called the planned corn acreage "still a significant chunk of acres," up 10 percent from 2006 even though it is down from 2007.
He said the association expects ethanol production to rise to 9 billion gallons this year from 6.5 billion last year.
"There appears to be substantial supplies available."
Doud of the Cattlemen's Association noted that ranchers, unlike ethanol makers, do not enjoy subsidized access to corn.
"We're not anti-ethanol but what we don't like is the fact that the ethanol industry is not experiencing the vagaries of supply and demand in the market place. They have the government mandate and they have subsidies," he said.