Crop damage makes corn price jump

20-06-2008 | |

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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