Here We Corn Again as USDA Says Stocks Hit 15 Year Lows

At this point I am just going to start cutting and pasting all my 2008 posts about food inflation – they are almost all repeating in identical fashion.  Only edit I have to do is I was stressing about $6 corn in 08, now we are about to touch $7.

Partly due to “super cool ethanol” (fully subsidized by you) corn stock in the US is down to a 15 year low.  On the plus side, the Mercedes and BMW lots in Des Moines, Sioux Falls, and Omaha should be extremely busy in the months and years ahead.

Via WSJ:

  • Federal forecasters predict U.S. corn supplies will match lows not seen in 15 years as strong demand from ethanol producers raise new concerns about low global grain supplies.
  • The U.S. Department of Agriculture in its monthly crop report made a larger-than-expected cut of more than 9% to an estimated 675 million bushels of domestic corn supplies as of Aug. 31, causing futures to surge to more than 2½-year highs Wednesday.
  • The USDA mostly left wheat- and soybean-supply estimates unchanged, yet futures climbed on concerns that world grains supplies are precariously low.  (this is sort of a funny line, because as we know by now prices no longer react to supply and demand – no matter what the USDA said about wheat and soybeans, prices can only go up!)
  • Agricultural commodities have boomed since last summer, reaching their highest levels since a record-setting rally in 2008. Food prices have followed, with the United Nations Food and Agriculture Organization food-price index hitting a record high in January.
  • The USDA’s projections put corn supplies as a percentage of usage at 5%, identical to the level 15 years ago. That is the ratio of supplies at the end of the crop year against how much corn would be used in a year. Supplies as a percentage of usage have fallen below 10% in only four years since 1960, Mr. Norton said.
  • The USDA’s forecast of reduced corn supplies was due mainly to higher-than-expected ethanol usage. Domestic production of ethanol in the U.S. is at record levels, with exports of the corn-based fuel additive tripling in the last year. The USDA projects 4.95 billion bushels of corn will go to ethanol production in the current crop year, about 40% of the domestic harvest.

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About Mark Hanna 543 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

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