FOOD FUTURES: Record oil could give corn prices another boost
FOOD FUTURES: Record oil could give corn prices another boost
Strong crude-oil prices could push corn prices, which were already at record levels, even higher as an increasing portion of corn would be set aside for ethanol use.
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The front-month corn futures contract hit a record high of $6.375 a bushel on May 9 on expectations corn stockpiles will drop to the lowest level in more than a decade in the 2009 crop season. Prices had since eased back to below the $6 level. But as crude futures broke the $130 a barrel level and surpassed $135 Thursday, corn prices also climbed back.
Corn futures for July delivery hit an intraday high of $6.22 a bushel Thursday in electronic trading, the highest since May 12. Futures closed down 11.4 cents at $5.956 a bushel on the Chicago Board of Trade. Crude-oil futures hit a record high of $135.09 earlier, but also eased backed to below $131. Read Futures Movers.
"Energy prices really are a powerful inflationary force that could spill over to the rest of our economy," said Austin Damiani, a futures broker at Frontier Futures Inc. "Corn has really large biofuel usage and there is certainly a correlation [between prices of corn and oil]."
The U.S. Department of Agriculture projected corn for ethanol production will reach 4 billion bushels next year, up more than 30% from this year and accounting for nearly 40% of domestic corn consumption.
Corn prices have been moving in tandem with ethanol futures. When corn hit a record high on May 9, ethanol futures also touched a high of $2.61 a gallon on the CBOT.
Rising oil prices "should continue to drive strong ethanol pricing and trump the high corn prices currently in the market," said David Driscoll, an analyst at Citigroup, in a note earlier this month.
The Energy Independence and Security Act that Congress passed with bipartisan support in 2007 requires U.S. biofuel production to increase to 36 billion gallons by 2022 from 4.7 billion in 2007. The act also specifies that 21 billion gallons of the 2022 mandate must be derived from non-cornstarch products, such as sugar or cellulose.
Corn futures for July delivery hit an intraday high of $6.22 a bushel Thursday in electronic trading, the highest since May 12. Futures closed down 11.4 cents at $5.956 a bushel on the Chicago Board of Trade. Crude-oil futures hit a record high of $135.09 earlier, but also eased backed to below $131. Read Futures Movers.
"Energy prices really are a powerful inflationary force that could spill over to the rest of our economy," said Austin Damiani, a futures broker at Frontier Futures Inc. "Corn has really large biofuel usage and there is certainly a correlation [between prices of corn and oil]."
The U.S. Department of Agriculture projected corn for ethanol production will reach 4 billion bushels next year, up more than 30% from this year and accounting for nearly 40% of domestic corn consumption.
Corn prices have been moving in tandem with ethanol futures. When corn hit a record high on May 9, ethanol futures also touched a high of $2.61 a gallon on the CBOT.
Rising oil prices "should continue to drive strong ethanol pricing and trump the high corn prices currently in the market," said David Driscoll, an analyst at Citigroup, in a note earlier this month.
The Energy Independence and Security Act that Congress passed with bipartisan support in 2007 requires U.S. biofuel production to increase to 36 billion gallons by 2022 from 4.7 billion in 2007. The act also specifies that 21 billion gallons of the 2022 mandate must be derived from non-cornstarch products, such as sugar or cellulose.
posted by Victor Lloyd Smith @ 6:20 PM
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