News last update:6 Aug 2012

Crop damage makes corn price jump

After passing the $7 barrier last week continuous rain and flooding in the Midwest of the US have pushed up corn prices further nearing $8 a bushel.

Corn prices crept closer to an unmatched $8 a bushel this week on concerns that damage to cornfields from Midwest flooding is worse than previously thought. The US Department of Agriculture publish its crop estimates later this month, but also suggested it will do a special assessment of how many acres have been lost to massive flooding that struck the Midwest last week.

Estimates of the toll vary widely, from 2 million to 5 million corn acres damaged or destroyed by floodwaters. Corn for December delivery rose as high as $7.85 a bushel on the Chicago Board of Trade before easing back to settle at $7.80, up 4 cents.

In the most-actively traded July contract, prices rose to $7.50 a bushel before falling back to settle 4 cents higher at $7.4625. Since corn in the US accounts for half of the livestock owners' production costs high corn prices mean consumers eventually will face more expensive meat and chicken. Livestock owners are forced to cull their herds and flocks to cope with rising corn-based animal feed costs.

Strong demand
It is not only the weather that is driving up the prices. Before the floods corn prices were already up more than 80% in the past year, because developing countries like China and India scramble for shrinking grain supplies to feed fast-growing populations and livestock. Demand from US ethanol producers who use corn as their main feedstock has also pushed prices higher, drawing criticism from poor countries.

Counter movements
Record corn prices have already begun to curb demand. Analysts have lowered the US forecast for ethanol capacity to 9.5 billion gallons from 10 billion gallons as the biofuel producers slow production until corn prices ease. Also Taiwan has announced it will buy sorghum and barley as a cheaper way to feed livestock.

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