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By Robert Rapier on Jan 15, 2008 with no responses

Corn Futures Behaving as Expected

Last May, in The Mythical Ethanol Threat, I discussed the massive overbuilding that was going on in the ethanol sector. I knew that it would squeeze margins, but that would also put the pressure on politicians to increase the mandates (which they have now done). In that essay, I wrote: “Note to self: Corn futures to double again by 2009.” I wasn’t actually joking, and they are well on their way:

Corn Soars to Record as Demand for Feed, Fuel May Exceed Output

Jan. 14 (Bloomberg) — Corn rose to the highest ever in Chicago, gaining the maximum permitted by the exchange, on speculation that global demand for feed and biofuel will exceed production for the seventh time in the past eight years.

World inventories of corn will fall to the lowest since 1984 on Sept. 30, the U.S. Department of Agriculture said Jan. 11. Inventories in the U.S., the world’s largest producer and exporter, will be 20 percent smaller than forecast last month, the USDA said. Prices have jumped 49 percent in the past five months, even after last year’s record harvest.

“The decline in supplies was a shock to people that have to use these commodities,” said Jeff Beal a consultant for Strategic Marketing Services Inc. in Rockford, Illinois.

What planet do you inhabit, Jeff Beal? This should have been a surprise to nobody. It has been entirely predictable.

Corn futures for March delivery rose 20 cents, or 4 percent, to $5.15 a bushel at 10:23 a.m. on the Chicago Board of Trade, exceeding the record for a most-active contract of $5.135 reached in May 1996. The highest price for any corn contract was $5.545 for the July contract in 1996.

Corn rallied 17 percent last year after surging a record 81 percent in 2006, on increased demand to produce ethanol and feed livestock and poultry.

It also rose 10% in the past week. It won’t be long before even the most die-hard corn ethanol supporters have to admit that corn prices are driving up food costs. Right now, they seem to think that food prices are magically immune from escalating corn prices, and the real reason is everything but ethanol. I suspect when they can no longer hide from reality, the argument will be “Don’t farmers deserve to make a decent living?”

This is a crime against humanity. People are going to starve and die. Our politicians are idiots, and this is going to end badly. But hey, it gets them some votes in Iowa, doesn’t it?