July 18, 2012

 

US corn prices to hurt consumers

 

 

Higher corn prices brought about by Midwest drought that's withering corn crops will cause everyone to pay more for groceries as well as rising feed costs for farmers.

 

USDA research economist Richard Volpe said price increases for beef, poultry, pork and dairy will mostly likely show up at the supermarket within two to three months.

 

Corn and its by-products such as corn starch, corn meal, corn oil and corn syrup are used in almost 75% of foods.

 

"We are forecasting consumers' supermarket basket costs to rise 2.5-3.5% in 2012 over 2011. If the price of corn jumps by 50%, we might expect to take that to 3.5-4.5%," Volpe said.

 

Volpe said there might be a reprieve on beef prices before they go higher.

 

"During times of high input prices and high fuel prices, it is not uncommon for ranchers to engage in a massive selloff of animals and reduce inventories to keep their heads above water. It would not be at all surprising in the next two or three months to see the price of beef go down a little bit," Volpe said.

 

John VanSickle, a University of Florida professor of food and resource economics, agreed that a beef sell-out will depress beef prices in the short term.

 

"Once we go through that hard liquidation, we will see prices going up even more. It will be something we will work through for a year," VanSickle said.

 

The drought, the worst in nearly 25 years, is affecting the 18 Corn Belt states. Farmers there expect their harvest to be 12% less than the June estimate.

 

"We expected a big crop. Near record acres were planted. A month ago we were expecting the nationwide yield to be 166 bushels per acre. This month they are saying that forecast yields will be 146 bushels per acre. We may not be at the bottom of that yet," VanSickle said.

 

"My corn is still alive, and yesterday when I talked to them, they said if we get rain in the next seven days, we will make a crop," VanSickle said.

 

Farmers whose corn survives can expect to receive an average of US$5.90 a bushel, up by US$1.30 from a month ago. Soy, grown by the same producers, will also be in shorter supply and command a higher price, VanSickle said.

 

Todd Clemons, president of the Okeechobee Livestock Market, where cattle are sold before being shipped to the feed lots in Kansas, Texas and other states, takes a different viewpoint.

 

"I don't believe any of it. It happens every year. We have had a drought every year. We always lose a certain percentage of the corn crop. At the end of the day, they will have more corn than they know what to do with," Clemons said. Clemons said any price run-up is because of increasing global food demand.

 

"Export markets have opened up. There's greater demand and lower supply. Don't panic over the corn thing," Clemons said.

 

An Internet sale of 400 head of calves Thursday (July 12) brought a price about US$0.15 a pound higher than Clemons expected, at US$1.30 a pound.

 

At Adams Ranch west of Fort Pierce, Fla., Mike Adams said rising corn prices will lift the price of corn feed as well as molasses and other mainstays fed to the 8,000 mother cows. Cattle prices are down 20% in the last 30 days, Adams said.

 

"The feedlots will have to discount our calves because of additional feed costs. The consumer prices for beef will not be any less. It may go up a little," Adams said.