ST. LOUIS (AP) -- Rising demand for corn from ethanol producers is pushing U.S. reserves to the lowest point in 15 years, a trend that could lead to higher grain and food prices this year.
The Agriculture Department on Friday left its estimate for corn reserves unchanged from the previous month. The reserves are projected to fall to 675 million bushels in late August, when the harvest begins, or roughly 5 percent of all corn consumed in the United States. That would be the lowest surplus level since 1996.
The limited supply is chiefly because of increasing demand from ethanol makers, which rose 1 percent to 5 billion bushels. That's about 40 percent of the total crop.
This is an interesting article because the corn reserve is being reduced to the lowest point all-time in 15 years. This was caused by a rising demand for corn and other foods related to corn products such as high fructose corn syrup, which is a very common ingredient for all sugar products such as sodas, popcorns, some snacks etc. This would lead to a higher price of food. Corn is also used to feed on the animals as well, so meat products would be expected to increase as well. This may be good for the agriculture industry and may possibly increase its production of corn. Nevertheless, it would hurt most of the consumers with tight budgets who are already hit by the recession.
4 comments:
Droughts in Eastern Europe, floods in Australia, have caused the food prices to increase since they are one of the major food producers. Also the rise of oil price increase the cost of production. Even though the recent disasters in North Africa, Middle East and Japan may have depressed the price, it looks like the cost of food prices are going to continue to rise.
I agree with YeaJin, the supply cut down will drive the food price up as well as the high oil price. High oil price will drive the transportation cost up, and I think this might be a bigger impact than the cutting down in production. The reason being is that, food can be imported from other places at a reasonalable price, but the high oil price is globally.
In an economy that has already been sluggish to respond to monetary policies enacted by the Fed this will not help spending in the United States. U.S. consumers have shown their dependency on their cars so as oil and subsequently gas prices rise Americans will continue to buy it. At the same time higher food costs (which is a basic need) will rise and reuire a larger percentage of American incomes to be spent on that. These two together make it unlikely that we will see an increase in consumer spending despite the Fed's best efforts to stimulate it.
Perhaps the dwindling reserves will prompt the US government to increase subsidies for corn farmers.
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