June 1, 2007

Corn prices seen to move upward over surging ethanol demand

Commodity traders are looking forward to a government report by the US Department of Agriculture on agriculture products this week to verify whether prices of corn and other crops will be higher as demand for ethanol continues to mount.

The US Department of Agriculture (USDA) is scheduled to release the May agricultural prices this week with reports including average prices received by farmers for crops such as corn, soybeans and potatoes as well as livestock and poultry. These prices are usually slightly lower than actual market prices.

The USDA reported in April the average price for all crops fell 0.7 percent from the previous month and rose 21 percent from April 2006.

Farmers and other agriculture analysts expect corn prices on the upward trend as ethanol producers like Illinois-based Archer Daniels Midland Co. and Pacific Ethanol drive demand for corn.

After hovering around US$2 a bushel for about a decade, corn prices have soared past US$3 as more than 100 ethanol plants have mushroomed across the country for alternative fuel demand.

Last month the average price per bushel of corn was US$3.20, up more than 50 percent from US$2.11 in the same month last year. The elevated corn prices have driven up prices of other commodities as farmers shifted their fewer acres from beans and grain.

About 90.5 million acres of corn are expected to be planted this year, up 15 percent from 2006 and the most since 95.5 million acres were planted in 1944.

In April, soy bean prices grew 23 percent to US$6.81 from US$5.52 in the same month last year. Livestock prices also increased 11 percent to US$94.60 from US$84.80 last year, primarily due to the rising cost of feed, which contains corn. These expenses have affected meat producers, including Smithfield Foods, which lowered fourth-quarter guidance this week on account of the growing cost of feeding hogs and cows.