Reduced ending stocks partnered with a smaller corn harvest means a strong corn market, at least until demand is rationed. Regardless of the decrease, this still is the third largest U.S. corn crop on record.
Today, USDA’s report estimated production and yield to 12.5 billion bushels and 154.3 bushels per acre, down from the October report. With a lower surplus, or carry-out, now estimated at 827 million bushels, corn futures are expected to continue their increase and the average farm price was increased 20 cents per bushel over the October estimate, to $5.20 per bushel.
There will no doubt be a resurgence of the food vs fuel debate, but even media outlets are wary to jump on that story this time around. It cannot be ignored that higher corn prices mean higher input prices in some sectors, but the relative importance of that increase is now better understood by a broader audience. In late August, the USDA reported that food price increases in 2010 will be minimal. The Consumer Price Index (CPI) for all food increased 1.8 percent in 2009 and is forecast to increase from 0.5 to 1.5 percent in 2010 – the lowest increase since 1992.
Part of the difference is due to food marketers’ reluctance to raise their prices during an economic downturn, recognizing that consumers are increasingly turning to store brands and other lower-priced shopping options, abandoning brand loyalty for pocketbook awareness. Another portion is more directly related to the price of transportation. Oil prices are nowhere near their previous highs, and market speculation has throttled back, demonstrating the fallacy of the claims that food price increases were only directly correlated to corn price increases.
Influential bodies have backtracked on their former food vs fuel claims. In a July 2010 report, the World Bank stated that “the effect of biofuels on food prices has not been as large as originally thought, but that the use of commodities by financial investors may have been partly responsible for the 2007-08 spike.”
The United Kingdom’s Department for Environment, Food and Rural Affairs issued a report in March 2010 that discounted biofuels impact, stating “Available evidence suggests that biofuels had a relatively small contribution to the 2008 spike in agricultural commodity prices. Studies which have found a large biofuel impact across agricultural commodities have often considered too few variables, relied on statistical associations or made unrealistic or inconsistent assumptions.”