The Great Corn Boom

Fortune looks at the dramatic rise in the price of corn:

Four-dollar corn. The price probably doesn’t mean much to many Fortune readers, certainly not the city slickers who wouldn’t know a combine from a planter. But in farm country, $4 corn is more than a big deal. It’s a phenomenon. “It’s the center of conversation in the center of the country,” says Elizabeth Hund, head of agricultural lending for U.S. Bancorp.
In the span of just eight months, the price of the U.S.’s most important crop – our biggest agricultural export as well as the staple feed for our livestock – has doubled from $2, about where it had been stuck since the late 1990s, to $4 a bushel. The cause is soaring demand from ethanol plants, which bought 2.2 billion bushels last year, 34% more than in 2005. Previous price spikes were short-lived and usually caused by drought, but the futures market thinks this rally has legs.
May 2008 corn recently traded at $4.20 a bushel, while December 2010 futures were at $3.74. This means farmers can lock in terrific prices not just for the 2007 crop but for the three after that as well.
Problem is, what’s good for farmers – and even better for the companies selling them tractors, seeds, and fertilizer – has started to roil other parts of the economy. The feed costs of cattlemen and hog farmers have skyrocketed. Ethanol producers have seen their profits slashed. Food companies are being squeezed and are starting to pass along higher costs to consumers. (This isn’t just a U.S. problem: Mexico is in an uproar over soaring tortilla costs.)

The market is responding. The Department of Agriculture reports that corn plantings will reach the highest level since 1944.

Posted by on March 30th, 2007 at 11:33 am


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