Corn prices surged to a record Monday, with some contracts briefly topping $8 a bushel for the first time as traders bet that a major swath of this year's corn crop will be lost to Midwest flooding.
The concerns were underscored after the markets closed, when the U.S. Department of Agriculture estimated that 43% of this year's corn crop is in fair to very poor condition vs. 30% at this point in 2007, which eventually produced a record harvest.
USDA last week reduced its estimate for corn production, given severe Midwest flooding and heavy rain, while predicting corn supplies could fall to the lowest level since 1996. Farm Futures magazine said more than a third of producers responding to an online poll hadn't been able to plant a full crop.
Preliminary reports are dire enough that corn for July delivery has surged from about $6 in late May to close Monday at $7.325 a bushel on the Chicago Board of Trade. Some corn contracts for later months rose above $8 before settling lower.
Though farmers, food companies and ethanol producers don't yet have a good read on the ultimate size of the corn crop, it's clear that supplies will be tighter and consumer prices higher.
VeraSun, the nation's largest ethanol producer, will delay bringing two new plants on line because of high corn prices, the company said Monday. Share prices for poultry producer Pilgrim's Pride and pork processor Smithfield Foods have taken a beating in the stock market as the price of corn feed has been escalating.
Bill Lapp, a principal at Advanced Economic Solutions in Omaha, said high corn prices could lead to higher meat prices six to 18 months from now as feed costs lead to reduced production.
"One area that has yet to have increased (feed) costs … translated into higher food prices is the beef, pork and chicken side of the business," says Lapp. "That's where we have to be most aware."
Lapp expects U.S. food inflation to hit a 9% average annual rate through 2012. Consumer food prices have been rising at a 6.3% seasonally adjusted annual rate this year. Earlier in the decade, food prices rose at an average 2.5% annual rate.
Floodwaters are beginning to recede in Iowa, but weather problems are not over in the Midwest. (Story, 2A.) In Missouri, where many fields are already waterlogged, farmers are nervously watching for flooding.
Charles Kruse, a fourth-generation farmer and president of the Missouri Farm Bureau Federation, said, in some areas, "the water is really high; it's going to be a good while before" it dries out.
"We are now preparing for the rise in the Mississippi," says Kruse. "All across the northern half of the state of Missouri and down the west side, we've just had so much rainfall that it has damaged crops."