Corn Panic

By Dr. Dennis Keeney, Visiting Scholar, Johns Hopkins Center for a Livable Future

corn-for-ethanolmoneyman The USDA 2011 Prospective Plantings Report was one of the most anticipated planting reports in several years. It came on the heels of a shocking Grain Stocks Report issued last month, which showed that corn stocks have come down 15% since March 2010. Ending stocks are projected to be only 675 million bushels, about 5% of the projected marketing year consumption, while consumption of the current marketing year corn was higher than in 2009 and well above projected consumption. Lowered stocks were also caused by a smaller than expected corn crop due to cold and rainy weather in the Corn Belt in 2010. Corn prices almost immediately increased by another $1 per bushel on the heels of a doubling of price during the past year. This dramatic price jump portends another round of world-wide food price increases, similar to those in 2008-2009. Already, some political uprisings in the Middle East have been blamed to some extent on rapid food price increases. In 2008-2009, yields bounced back to normal and the ethanol demand was much lower.

Why has this happened? Will it be alleviated by a bumper crop on more acres in 2011? Or has the grain commodity price structure started a trend towards a “new normal” of steadily increasing prices and more shortages?

The March 31 crop report indicated that farmers “intend” to plant 5% more acreage in corn, 8% more in wheat and 15% more in cotton while cutting soybean planting by only 1%. This adds up to 4 million more acres of cropland than there were in 2010.  One wonders where that extra land is coming from. Most likely, it is land being retired from the Conservation Reserve Program (CRP), and includes more fragile meadow and grassland. That is not good news for the environment. Just recently, a number of congressional members called for the immediate release of some of the 31.2 million acres of CRP for cropland.

I would like to explore what corn is used for and why the sudden drop in ending stocks surprised so many people, before presenting some scenarios that may play out in the near future. Read More >