The price of corn has reached $6 per bushel for the first time ever. And the USDA predicts that for some reason American farmers are going to plant less of it.
Corn prices have shot up nearly 30 percent this year amid dwindling stockpiles and surging demand for the grain used to feed livestock and make alternative fuels including ethanol. Prices are poised to go even higher after the U.S. government this week predicted that American farmers -- the world's biggest corn producers -- will plant sharply less of the crop in 2008 compared to last year.Needless to say, that will drive prices up even more. It also means that grocery prices for meat and poultry - and many other food categories - will rise even higher. Corn is either feedstock for other food animals or a processed component for a large number of other foods.
But that's not all. Consider corn ethanol used for fuel. Ethanol is a gasoline replacement. When petroleum prices rise, it's good news for oil companies because their profits rise, too. But when corn prices rise, the economics of producing a gasoline replacement from corn don't work so well.
Another loser in higher corn costs is ethanol producers, who are struggling to squeeze out gains as corn's record-setting run outpaces the price of ethanol, currently at around $2.50 a gallon.I've been arguing against corn ethanol for a long time.
"For years, corn was cheap and fermentation processes for ethanol production came to completely dominate the biofuel industry in North America," Michael Jackson, president and chairman of Vancouver-based ethanol maker Syntec Biofuel, said this week. "Now, with corn prices well over $5 a bushel, corn ethanol economics have gone out the window." ...
"Bottom line earnings are near break-even or modestly below break-even," he said.
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