February 11, 2011

Huge demand for US corn to drive food prices high

After high corn demand has pushed US stocks to their lowest point in 15 years, Americans should expect for higher food prices this 2011.

Higher projected orders from the ethanol industry sent corn futures soaring Wednesday (Feb 9), as corn supplies became the latest commodity to plummet. Low levels of wheat, coffee, soy and other food staples have already sent prices surging on the global market.

As those reserves decline, US food companies are warning of retail price increases.

The ethanol industry's projected corn orders this year have risen 8% to 13 billion bushels, after record-high production in December and January, USDA said Wednesday (Feb 9).

The USDA report measures global supply and demand for grains, oilseeds and other crops. The department said its projections for wheat and soy reserves remained unchanged at historically low levels.

The price of corn affects most food products in supermarkets. It's used to feed the cattle, hogs and chickens that fill the meat aisle.

The decline in reserves caused corn futures to surge, with prices rising 3% to settle at US$6.98 a bushel. Corn prices have already doubled in the last six months, rising from US$3.50 a bushel to nearly US$7 a bushel. Analysts expect the price increases to continue in coming months.

"I think we have a chance to test the all-time high" price of US$7.65 a bushel, said Telvent DTN analyst John Sanow. The tight level of reserves leaves little margin for error if there are production problems this year, which could send prices higher quickly, he said.