Corn prices hit record highs in Chicago
NEW YORK — Corn prices surged to record peaks in the United States Thursday amid tight supply and fierce demand driven in part by rapid expansion of biofuels production.
With demand outpacing supply despite a massive runup, and high oil prices adding to the pressure, analysts saw little respite in sight for buyers.
On the Chicago Board of Trade, a bushel (about 25 kilograms) of corn for delivery in May rose to an all-time high $7.72.
At more than $300 a ton, the price of the grain, used to feed humans and animals and produce biofuels, has surpassed its last record peak in July 2008, when high food prices sparked riots in several countries and led generated political instability.
Corn futures prices, which have more than doubled from the same time last year, have risen further since March 31, when the US Department of Agriculture highlighted that supplies were limited in the US, the world’s leading corn exporter.
“Despite higher US plantings, demand remains robust, inventories hover at dangerously low levels and weather remains a risk as ever,” Barclays Capital analysts said in a client note.
Corn, or maize, is the most widely produced feed grain in the United States. But last year the US had a disappointing harvest, while the demand for commodities climbed as the global economy recovered from recession.
In the meantime, a severe drought in Russia in the summer of 2010 reduced Russian wheat exports, intensifying demand for corn.
“Corn prices are actually being driven by robust demand,” said analysts at Commerzbank.
“Unlike most agricultural commodities, the shortage of corn is not due to supply losses… Quite the opposite, global corn production should reach a record level in the current crop year, at 814 million tons.”
And record prices are encouraging US farmers to plant more corn. The acreage devoted to corn is expected to reach its highest level since 1944, according to USDA estimates.
“The demand is limited by the supply — there is not enough,” said Bill Nelson of the agricultural research firm Doane Advisory Services.
“Prices have to go higher” for supply and demand to balance out, he noted.
With meat prices garnering steep price rises in the US, corn still remains affordable for farmers to feed their animals.
Higher energy prices are also fueling corn prices: 40 percent of US maize production is used for production of ethanol, a biofuel mixed with gasoline and sold at American gas stations.
And with the recent surge in crude oil prices on the back of unrest in the Arab world, the price of ethanol, while high, remains competitive enough to be used in gasoline.
The trend appears likely to continue.
Last October, President Barack Obama’s administration, vowing to wean the world’s biggest oil consumer off foreign oil, gave the green light for gasoline to contain up to 15 percent ethanol, compared with the current 10 percent cap, for a limited number of vehicles.
In January, the Environmental Protection Agency sharply expanded the pool of vehicles eligible to use the blended fuel — adding to the demand.
But this could mean hardship for the world’s consumers of corn, a staple particularly in Africa and Latin America, said said Shenggen Fan, head of the International Food Policy Research Institute, based in Washington.
“Most maize is used for biofuel production, so there is less to export and other countries have less to import.”
He warned that higher corn prices carry a heavy social cost, affecting poor people where corn is a major element of their diets.
“Higher food prices will make them poorer and make them hungry,” he said.