Reduction Of Corn Harvest By Half A Billion Bushels Caused Corn Price To Jump To $8 Per Bushel

Washington, D.C. (AHN) - The flood waters of Iowa has just started to recede, but America is already feeling the impact of the flood on corn prices which hit $8 a bushel on Monday.

After preliminary reports of poor harvest for July delivery came out, corn price went up to $6 a bushel in late May and closed $7.325 a bushel on Monday at the Chicago Board of Trade. Corn contracts for later months even exceeded $8 and then lowered a bit at $8.

Iowa, one of the largest corn and soybean producer in the U.S. was flooded by as much as 14 inches of rain the past two weeks, according to the National Weather Service. As a result, land for corn and soybean planting would be reduced up to 4 million acres, said Dan Basse, president of AgResource Company.

The U.S. Department of Agriculture estimated 43 percent of 2008's corn harvest would be in fair to poor condition as against only 30 percent in 2007. The Midwest flood would result to half a billion bushels reduction in corn harvest from the June 10 forecast of 11.735 billion bushels, the lowest level since 1996.

What would compound the situation is the competition for corn between the food and the clean fuel industries. Because of the jump in corn prices, VeraSun, the U.S. largest ethanol producer, delayed two new plants. Share prices of poultry producer Pilgrim's Pride and pork processor Smithfield Foods registered sharp declines following the increase in corn price.

The high corn price could trigger an increase in meat prices within the next 6 to 18 months, forecasts Bill Lapp, principal at the Advanced Economic Solutions. This, in turn, could lead to food inflation in the U.S. hitting 9 percent yearly through 2012.

Basse projects an even higher $8.75 per bushel price for corn if the U.S. would experience more weather problems in the coming months.