Corn is a mighty hot commodity these days.
Grain prices soared after weather damage across the Corn Belt led the U.S. Department of Agriculture to predict lower yields than previously expected earlier this month.
Some agronomists and farmers predict yields will likely be even lower because of ongoing heat and drought.
All the while, demand for corn seems to be insatiable — the ethanol industry, livestock and export markets can't seem to get enough. Economists say demand will likely continue to outstrip supply for some time, keeping grain prices and the cost of food high.
This flurry of high corn prices has traders flocking to the commodity, in some ways treating it like the new gold. Traders are speculating on corn prices well into 2013, and there are some bets on corn futures even further out. Money in corn futures is five times what it was in 2004, according to numbers from the Chicago Mercantile Exchange. There is nearly a $2 trillion market for corn alone.
All this market frenzy has farmers — some just weeks away from the start of harvest — hoping for rain.
On his farm just outside Des Moines, Iowa, Vernon Flinn walks his cornfields with two grain buyers from Heartland Co-op to check on yields. Flinn twists off an ear of corn and finds some heat damage.
Still, when they measure the ears and count kernels back at the pickup, Flinn estimates a pretty decent crop, about 170 bushels per acre, compared with the 153 projected nationally.
Not Enough To Meet Demand
Farmers across the country planted far more acres of corn this year. So, even though flooding and drought lowered yield estimates, harvest time could still bring a good-sized haul in places that avoided the worst of the weather damage, like Iowa and Nebraska.
But the national corn yield won't be enough to meet demand, says Iowa State University economist Chad Hart. Demand from the ethanol industry, livestock feed and export market continues to outstrip predictions, he says, and that has boosted grain prices even more.
"When you look last summer, we had corn prices in some cases down around $3.50 a bushel," he says. "Now we're up in the $6- to $7-range, so we've seen nearly a doubling of prices over that past 15 months."
The USDA report suggests that grain prices will stay elevated for the next year or so. Corn stockpiles are nearing a 15-year low, and soybean stockpiles have been tight for at least four years. And in the past few months, another player has taken a bite out of the U.S. corn market.
"China's been a very early buyer of the corn crop we're growing now," Hart says. "And that's been something that has got the market a little worked up right now."
China bought some 21 million bushels from the United States in July, its biggest purchase in 15 years.
High Prices, High Stakes
High grain prices are usually good news for farmers — in the past, they helped Vernon Flinn buy a new tractor.
But today's even higher prices mean even higher stakes, and Flinn says selling in this volatile market comes with risks.
"I mean, you're kind of scared to sell it for fear you're going to miss the rally, and you're scared if you don't you sell it for fear we're going to say, 'Oh, heck, we should have sold it all last time,' " Flinn says.
Driving his truck over to the next cornfield, Flinn and corn buyers Nick Hyde and Ron Groskreutz discuss what every farmer struggles with: enormous swings in the market.
"It was a lot more fun when corn was $3 and ... if it moved 10 cents in a day, you know, that was huge," Flinn says.
Hyde adds, "When I got in the business, if it moved a nickel in a day, you were looking for a meteorite."
Flinn says this year, corn prices have averaged moving an astonishing 22 cents a day.
"I've always said, high-priced corn doesn't do anybody any good," he says. "If corn goes high, everything else follows suit whether it needs to or not, and all it does is cause financial havoc. It just takes a lot more money for us and the co-op to do business."
Adds Hyde: "The cure to high prices is high prices."
Farmers and traders alike are getting pretty worked up over the possibility of $8-a-bushel corn. But for consumers, this market frenzy translates into higher food prices.
Grocery items that rely heavily on grains — like meat, butter and eggs — are likely to keep going up. And much of it traces back to corn, which just may be the emerging gold standard of agriculture commodities.
Kathleen Masterson reports from Iowa for Harvest Public Media, an agriculture-reporting project involving six NPR member stations in the Midwest. For more stories about farm and food, check out harvestpublicmedia.org.
MELISSA BLOCK, Host:
As Harvest Public Media's Kathleen Masterson reports, all of this has some investors treating corn like the new gold.
KATHLEEN MASTERSON: On a recent sun-beaten afternoon, I'm traveling with two corn buyers from Heartland Co-op in Des Moines to Vernon Flinn's farm just outside of town. They're visiting to check the crop's progress. For a more accurate estimate, you need to check the corn away from the edge of the field. So we wrestle our way through the towering eight-foot corn stalks, shielding our faces to keep from being cut by the sharp leaves.
(SOUNDBITE OF RUSTLING LEAVES)
MASTERSON: Flinn twists off an ear of corn to examine how the heat has damaged it.
VERNON FLINN: That one there is kind of a nose back, probably due to dry weather or - this here's probably 16 rows around and it looks like probably four or five kernel rows right there and that row that's aborted or will not fill.
MASTERSON: But demand from the ethanol industry, livestock feed and export market continues to out-strip yield projections, says Iowa State University economist Chad Hart, and that sent grain prices soaring.
CHAD HART: When you look, last summer, we had corn prices, in some cases, down around $3.50 a bushel. Now, we're up in the 6 to $7 range, so we've seen nearly a doubling of prices, if you will, over that past 15 months.
MASTERSON: And in the last few months, another player has taken a bite out of the US corn market.
HART: China's been a very early buyer of the corn crop we're growing now and so they've already, if you will, put in some advance purchases and that's been something that has got the market a little worked up right now.
MASTERSON: Now, high grain prices are usually good news for farmers. They helped Vernon Flinn buy a new tractor, but today's even higher prices mean even higher stakes and Flinn says selling in this volatile market comes with risks.
FLINN: I mean, you're kind of scared to sell it for fear you're going to miss the rally and you're scared if you don't sell it, for fear we're going to say, oh, heck, we should have sold it all last time.
MASTERSON: Driving his truck over to the next cornfield, Flinn and corn buyers Nick Hyde and Ron Groskreutz discuss what every farm struggles with: enormous swings in the market.
FLINN: It was a lot more fun when corn when $3 and it would move. Maybe the limit was 10 cents and if it moved 10 cents in a day, you know, that was huge.
NICK HYDE: If it moved a nickel in a day, you were looking for a meteorite.
FLINN: And now, they're saying corn is average. This year is just right around 22 or 23 cents a day.
HYDE: From high to low.
FLINN: In a day, it'll move. Well, unheard of.
MASTERSON: For NPR News, I'm Kathleen Masterson. Transcript provided by NPR, Copyright NPR.