April 19, 2007

 

High US corn prices may stimulate food price hike
 

 

The steep climb in the price of corn may fuel food price hike and stimulate general inflation rate in the next two years, according to agricultural economists.

 

Corn prices have doubled in the past two years and rose above US$4 a bushel in January due surge in demand from the US ethanol industry.

 

Growing competition for corn has raised costs by varying degrees for livestock and poultry producers and food makers in general, costs which consumers have only begun to realize.

 

Purdue University agricultural economist Chris Hurt said food inflation in January and February are inching above the general inflation rate which is anticipated to continue for the rest of the year.

 

He added food inflation rate would go up by 1 to 2 percent as prices will rise by 5 percent which is normally just pegged at 2 to 3 percent.

 

Hurt said the trend will likely continue in 2008.

 

More competition for farmland will also force prices of other food and feed commodities higher such as soybeans, wheat and alfalfa.

 

Prices of food containing large portion of corn and corn products will increase sooner than meat, poultry, and dairy products, which may also rise considerably within a year or two of the initial price spike in corn, economists said.

 

Losses at the farm level would eventually be passed on to the retail level as farmers liquidate herds and flocks to cope with losses from higher feed costs or market their meat-yielding animals at lighter weights, they said.

 

Darrel Good, a professor of agricultural economics at the University of Illinois states the effects of high price of corn are yet to be felt but the big impact will come if livestock will liquidate substantially which would translate to meat supply shortfalls, thus, follow high prices.

 

US farmers were expected to plant more corn in 2007 by 90.7 million acres, the biggest within 63 years, according to US Agriculture Department projections.

 

Ethanol producers could consume a quarter of the new crop, compared with 20 percent last year and 14 percent two years ago, according to some analysts.

 

Strong demand from ethanol producers may hold corn prices above US$3 a bushel for the foreseeable future, but adverse growing conditions this summer could send prices much higher, said Good.