Drought and Corn Prices

I brought up the fact recently that a drought in the corn belt due to the La Nina currently in place could really affect the corn prices and affect the price of food for all of us. I got accused of only caring for this because of how it affects the beef market. I will admit that is my first thought but the amount of food in our supply chain that uses corn products like high fructose corn syrup and other components is staggering. Above and beyond that corn prices don't move by them selves in a vacuum. If corn prices go up so do the prices of other grains. <br />n<br />nI'm getting a little off what I wanted to point out. Someone has analyzed this situation. Iowa State University economists Lihong McPhail and Bruce Babcock have an <a href="http://agecon.lib.umn.edu/cgi-bin/pdf_view.pl?paperid=29589&ftype=.pdf">interesting report</a> on the corn market that is summarized very nicely <a href="http://www.farmgate.uiuc.edu/archive/2008/03/what_impact_wou.html">here</a>.<br />n<br />n<blockquote>With the prospect of a La Nina drought affecting 2008 production, a 113 bu. national yield (1988 style drought) would push corn prices to $6.42 and only 27% of the ethanol plants could operate and the ethanol production mandate would not be met. If the mandate was enforced (Energy Independence and Security Act), corn prices would reach $7.99 and ethanol plants would require a $6 billion subsidization to continue operating.</blockquote><br />n<br />nEight dollar corn. If you don't think that would affect the price of food you eat, you are a fool. This kind of thing would really fuel some inflation in this country. Even if corn prices only rose to $6.50 with no enforcement of the mandates, That's still a lot of money for corn and a lot higher food prices. <br />n<br />nNow there is no guarantee that there will be a drought this year. There is also no way of accurately estimating how many acres will be planted to corn so these are just estimates but if you care about the price of food at all, this ought to scare you. Would removal of the mandates reduce prices?<br />n<br />n<blockquote>Removal of the $0.51-per-gallon blenders credit would have a large impact on corn markets<br />nonly if the EISA mandate were also eliminated. With both eliminated, the average price of<br />ncorn would drop by about 22%.</blockquote><br />n<br />nSo, weather related disasters could really have a large impact on corn prices with the present environment of mandates for ethanol that the American public desires. I hope we all enjoy the ride. <br />n<br />n<strong>Facts are stubborn, but statistics are more pliable. Mark Twain</strong>