Corn Hits $6 a Bushel on Tight Supplies

Thursday April 3, 6:56 pm ET
By Stevenson Jacobs, AP Business Writer
Corn Prices Jump to Record $6 a Bushel, Driving Up Costs for Food, Alternative Energy

NEW YORK (AP) -- Corn prices jumped to a record $6 a bushel Thursday, driven up by an expected supply shortfall that will only add to Americans' growing grocery bill and further squeeze struggling ethanol producers.
Corn prices have shot up nearly 30 percent this year amid dwindling stockpiles and surging demand for the grain used to feed livestock and make alternative fuels including ethanol. Prices are poised to go even higher after the U.S. government this week predicted that American farmers -- the world's biggest corn producers -- will plant sharply less of the crop in 2008 compared to last year.

"It's a demand-driven market and we may not be planting enough acres to supply demand, so that adds to the bullishness of corn," said Elaine Kub, a grains analyst with DTN in Omaha, Neb.

Corn for the most actively traded May contract rose 4.25 cents to settle at $6 a bushel on the Chicago Board of Trade, after earlier rising to $6.025 a bushel -- a new all-time high.

Worldwide demand for corn to feed livestock and to make biofuel is putting enormous pressure on global supply. And with the U.S. expected to plant less corn, the supply shortage will only worsen. The U.S. Department of Agriculture projected that farmers will plant 86 million acres of corn in 2008, an 8 percent drop from last year.

Moreover, cold, wet weather in parts of the U.S. corn belt may force farmers to delay spring planting, potentially sending prices even higher.

While corn growers are reaping record profits, U.S. consumers can expect even higher grocery bills -- especially for meat and pork -- as livestock producers are forced to pass on higher animal feed costs and thin their herd size.

"Higher corn prices is going to affect meat prices. If you're feeding with $6 corn, you'll definitely have some (cost) pressure," Kub said.

In addition, corn and corn syrup are used in an array of products, meaning the price of everything from candy to soft drinks will eventually go up, analysts say. It's the latest dose of bad news for U.S. consumers, who are already struggling with higher food costs from record increases in the price of wheat, soybeans and other agriculture products.

Another loser in higher corn costs is ethanol producers, who are struggling to squeeze out gains as corn's record-setting run outpaces the price of ethanol, currently at around $2.50 a gallon.

"For years, corn was cheap and fermentation processes for ethanol production came to completely dominate the biofuel industry in North America," Michael Jackson, president and chairman of Vancouver-based ethanol maker Syntec Biofuel, said this week. "Now, with corn prices well over $5 a bushel, corn ethanol economics have gone out the window."

The nation's 147 ethanol plants now have the capacity to produce 8.5 billion gallons of fuel a year, according to the Renewable Fuels Association. Corn is the basic feedstock for most of the plants and about 20 percent of last year's 13 billion bushel corn crop was consumed by ethanol production. That percentage is expected to increase to 30 percent for the next crop year, which ends Aug. 31, 2009, according to Terry Francl, a senior economist for the American Farm Bureau Federation.

There are still plans to build or expand another 61 plants, which will add about 5.1 billion gallons of capacity. However, as corn prices have climbed over the past year or so, construction of several plants has been halted or delayed, shaving about 500 million gallons worth of capacity off the original figure, according to Broadpoint Capital analyst Ron Oster.

At least one facility, the Alchem plant in Grafton, N.D., shut down late last year because of high prices.

A new plant hasn't broken ground over the past couple of quarters, Oster said, and while producers can have positive gross margins with ethanol at $2.50 a gallon and corn at $6 a bushel, that doesn't mean companies are profitable.

"Bottom line earnings are near break-even or modestly below break-even," he said.

Looking ahead, only the strongest ethanol producers will survive in an era of ever-rising corn prices, said Soleil Securities analyst Ian Horowitz.

"There are going to be some particular companies that definitely have the balance sheet and efficiencies that will be able to eke out a positive return in this kind of environment," Horowitz said. "And then there will be others that will suffer at the hands of $6 corn."

Associated Press Business Writer Lauren LaCapra contributed to this report

First off: According to the agriculture department, corn planting is expected to remain at historically high levels but could be down this year because of the high expense of growing corn and favorable prices for other crops, such as soybeans.

Farmers are not going to plant less corn simply to keep the prices up. They are just planting more of other crops.

OK. This is what happens when Liberals make knee jerk reactions to gas price increases. This is what happens when the government gets involved with private business: The costs go up!

So, not only are we paying higher prices for gasoline, but now we are paying higher prices for food! Cows eat corn. Chickens eat corn. NOW, the prices for those foods will increase, so we can "save the planet" by buying inefficiant gas(ethanol)! While the US government chastised oil executives earlier in the week over high gas prices, the same government is deliberatley causing food prices to rise as well!! WTF?!

Last year, there was a tiny little protest over the rising cost of tortillas in Mexico City. Perhaps you heard of it? I doubt it. But here it is: Tens of thousands of people have marched through Mexico City in a protest against the rising price of tortillas.Save the Planet, kill it's inhabitants! No thought, just emotional, feel good, stupid ideas. The Liberal way. Maybe they can explain to tens of thousands of impoverished people, why they must pay more for their food? Ted Turner may be right when he say's that we will resort to canibalism if we do not "save the planet" soon. We will be forced into canabilism because the Liberas will starve us to death! Fuckin hypocrites!