U.S. corn futures topped out at record highs on June 11 on the news that the impact of flooding in the Midwest would hurt this year’s corn crop.
“[A]gricultural disaster aid has been requested for Iowa, Illinois, Wisconsin and Michigan,” CBS correspondent Cynthia Bowers said on the June 11 “Evening News.” “The federal government estimates that this year’s corn crop will be 10 percent lower than last year’s. That’s down 1.4 billion bushels, and it’s too late to do much about it.”
According to [1]a June 11 Reuters story, corn prices on the Chicago Board of Trade have shot up 80 percent in the last 12 months, with almost 17 percent of that just this month.
“As a result [of the flooding], corn is trading at all-time highs – up 52 percent for the year, topping $7 a bushel,” Bowers said. “And analysts say it’s headed for $8 [a bushel] – costs that will soon be passed on again at the grocery store where consumers are already paying more for anything with the word ‘corn’ in it.”
But Bowers didn’t explain how the prices got so high before the floods, which put consumers of corn products in this vulnerable position. Corn futures were already priced high because of a heightened demand – artificially stimulated by federal government subsidies for ethanol produced from corn.
According to George Mason University professor and Business & Media Institute advisor Walter Williams, the use of ethanol as a “cheaper gasoline” is a “cruel hoax on the American consumer” by corn farmers, ethanol producers and politicians.
“Ethanol is so costly that it wouldn’t make it in a free market,” Williams wrote [2]for Creators Syndicate on March 12. “That’s why Congress has enacted major ethanol subsidies, about $1.05 to $1.38 a gallon, which is no less than a tax on consumers. In fact, there’s a double tax – one in the form of ethanol subsidies and another in the form of handouts to corn farmers to the tune of $9.5 billion in 2005 alone.”
Williams noted in his column – published long before the Midwest floods – that Congress’s actions would put pressure on food prices.
“Ethanol production has driven up the prices of corn-fed livestock, such as beef, chicken and dairy products, and products made from corn, such as cereals,” Williams wrote. “As a result of higher demand for corn, other grain prices, such as soybean and wheat, have risen dramatically. The fact that the U.S. is the world’s largest grain producer and exporter means that the ethanol-induced higher grain prices will have a worldwide impact on food prices.”
One futures analyst predicting corn at $8 a bushel directly blames ethanol mandates from the U.S. government and the recent moves of the price of crude oil into record territory.
“I believe a reasonable target for corn by the end of this year is $8, which would largely be dictated by price movements of the U.S. dollar and crude oil,” Carol Hurley, a senior market strategist with Lind-Waldock, a futures brokerage service, [3]wrote for Insidefutures.com on June 11. “If crude oil continues to rally, that will naturally push corn higher because of ethanol mandates by the U.S. government.”