In a research note released this morning, analyst John Roy of W.R. Hambrecht and Co., says that U.S. farmers must plant at least 93.2 million acres of corn for the price of a bushel of corn to stay at (U.S.)$4.10. That is still a very high price — the 40–year average for bushel is around $2.40 — but, as Roy notes, prices could go higher still because of a booming demand in North America for ethanol. Right now, most ethanol in the North American market is made from corn.
Consumers, investors, and businesses will get a sense of how much corn will be planted in the U.S. on March 30 in the quarterly Grain Stocks and Prospective Plantings published by the U.S. Department of Agriculture.
If there is that much corn planted, that would represent a 19.5 per cent increase compared to what was planted last year.
Rising corn prices is affecting the price of food. In Mexico, tens of thousands have been involved in several demonstrations protesting higher food prices. The tortilla — a corn-flour product that is a staple of the Mexican diet — has become very expensive.
The University of Illinois has published an estimate indicating that farmers must harvest 12.5 billion bushels of corn this year for prices to remain where they are.
Roy writes:
Recent warnings from two University of Minnesota economists (Runge and Senauer) about rising food costs have hit the popular press. Due to the ethanol demand for corn (projected to be 35% of the harvest within a few years), Runge and Senauer now see corn prices up 20% by 2010 and 41% by 2020. Just 4 years ago the same team saw grain prices falling. They cite the recent problems with tortilla prices in Mexico as a good example of the type of problem we might see. We don't see politicians changing their views on ethanol subsidies, however, this is something to watch. Cellulosic ethanol would seem to solve this issue.
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