Just
as growing concern about “Agflation,”
or the steep rise in prices for many agricultural
products, is starting to peak, word comes
that an expected bumper corn crop may dampen
prices by creating a supply cushion.
Commodity
prices in many categories have been surging
over the past two years, including agriculture,
where demand for corn to feed the growing
corn-based ethanol market has been a bounty
to farmers (see Commodity
Buyers under Pressure on Many Fronts, as
Economy now Confronts "Agflation").
This has in turn put cost pressure on manufacturers
and other buyers of agricultural products,
as the price for raw agricultural commodities
and derivative products such as corn syrup
hit record levels.
But as typically
happens in agriculture, the good times for
farmers may lead to over planting, which
will increase supply and ultimately reduce
prices again. Last week, the US Agriculture
Department issued a report estimating the
amount of corn planted this year will grow
even more than expected. It said farmers
will sow almost 93 million acres of corn
in 2007 – an increase of 3% over the
estimate for the year made in the first
quarter, and up almost 19% over 2006 planting
levels.
The
pressure that ethanol is putting on the
corn market is significant. Last year, ethanol
production took about 14% of the US
corn crop. That is expected to grow to 30%
by 2010.
The likelihood
of abundant supplies as a result of the
growth in corn acreage has sent prices down
of late. Corn for December delivery is now
being priced at about $3.50 per bushel in
the futures markets, down from $4.00 in
mid-June, though still up sharply against
the same period a year ago.
Weather-related
issues, such an extreme drought this summer
in the Midwest,
could also hurt farm yields and mitigate
the favorable price impact of the growth
in corn acreage. |