May 23, 2008
 

Corn prices could move further up as oil breaks records

Record oil prices could push corn prices, which were already at record levels, even higher as more corn is expected to be devoted for ethanol use.

The front-month corn futures contract hit a record high of US$6.375 a bushel on May 9 on expectations corn stockpiles will drop to the lowest level in more than a decade in the 2009 crop season.

Prices had since eased back to below the US$6 level. But as crude futures broke the US$130 a barrel level and surpassed US$135 Thursday, corn prices also climbed back.

Corn futures for July delivery hit an intraday high of US$6.22 a bushel Thursday in electronic trading, the highest since May 12.

Futures were last seen down 7 cents to US$6.00 a bushel on the CBOT. Crude-oil futures hit a record high of US$135.09 earlier, but also eased backed to near US$132 recently.

"Energy prices really are a powerful inflationary force that could spill over to the rest of our economy," warned Austin Damiani, a futures broker at Frontier Futures Inc.

The USDA projected corn for ethanol production will reach 4 billion bushels next year, up more than 30 percent from this year and account for nearly 40 percent of domestic corn consumption.

Corn prices have been moving in tandem with ethanol futures. When corn hit a record high on May 9, ethanol futures reached a high of US$2.61 a gallon on the CBOT.

Congress mandates US biofuel production to increase to 36 billion gallons by 2022 from 4.7 billion in 2007.

Of that, 21 billion gallons must be derived from non-cornstarch products, such as sugar or cellulose.