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How the price of corn matters

Sarah McCammon Aug 12, 2013
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How the price of corn matters

Sarah McCammon Aug 12, 2013
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The U.S. Department of Agriculture is projecting a record harvest.  A new report predicts a slightly smaller crop than previously projected, at 13.8 billion bushels. But that’s still a record, and nearly 30 percent larger than last year.

Bruce Babcock, an economist at Iowa State University, says it’s a matter of supply and demand.  “Farmers responded to higher prices, and they planted a record number of acres,” he says.

Nathan Fields is director of economic analysis at the National Corn Growers Association. He says this year’s weather was very different from last year’s drought, which ruined much of the crop.

“We’ve seen a much cooler, wetter year, and that’s resulting in some pretty robust supplies,” Fields says.

With supplies up, prices are down about 40 percent. Corn is trading below $5 per a bushel, down from around $7 last year.

But that’s not likely to mean lower food prices, says Bob Goldin, executive vice president of the food industry consulting firm Technomic. He says the industry is in no hurry to cut prices. But he expects food prices to go up more slowly because of the reduced cost of corn..

“It’s a big budget item, so the fact that food prices are not rising as rapidly as they anticipated is good news for the industry,” Goldin says.

That’s also good news for livestock producers, who rely on corn for feed.

Another reason food prices aren’t likely to decline is that corn is a tiny fraction of the cost of many foods. Take a box of Corn Flakes, priced at three or four dollars.

“It’s got about 10 cents of corn in there,” Fields says.

The rest is labor, transportation, and marketing — which don’t rise and fall with the price of corn.

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