Rising corn prices are actually falling, states corn industry

By Lorraine Heller

- Last updated on GMT

Related tags: Food, Maize

Americans are paying proportionally less than any other nation for
food, which the corn industry claims is largely a result of efforts
to ensure abundant supplies of the crop.

Statistics from the US Department of Agriculture (USDA) reveal that Americans spend only ten percent of their disposable income on food, which compares to 22 percent in the UK and 51 percent in India. According to the National Corn Growers Association (NCGA), American farmers have harvested the largest corn crop in history this year. The agricultural sector has "worked hardto ensure our food supply is not only safe and secure, but plentiful enough to meet all demands and retain the affordable food prices consumers have come to expect,"​ said Ken McCauley, NCGA chairman. But despite positive-spin statements from industry bodies, the facts and figures glaringly point at soaring commodity prices, which have resulted in higher costs for both manufacturers and consumers. Many food manufacturers, including Sara Lee and Kraft, have recently posted a drop in profits, with every one laying the finger of blame on the rising cost of grains, milk and meat. Others, such as PepsiCo and Unilever, have had to restructure operations, increase marketing spend and raise consumer prices in order to offset higher costs. In a statement released yesterday, NCGA attempted to promote a positive view on the situation. "While corn prices have increased in recent months, economic analysis shows that when adjusted to real dollars without inflation, corn is a bargain at prices cheaper than 20 years ago,"​ the group quotes Jim McLaren, economist and president of Strathkirn technical consulting company as saying. But 20 year-old production figures are no ideal point of comparison, and neither are prices not adjusted for inflation. Twenty years ago, corn production was 7.13bn bushels, with prices set at $1.94/ bushel (1987). In comparison, corn prices at yesterday's close at the Chicago Board of Trade were set at $3.77/bushel. USDA estimates for this year place corn production at 13.1bn bushels. However, USDA also estimates that corn demand for ethanol will rise to 3.3bn bushels this year. This in essence strips down the corn available for food to 9.8bn bushels, placing it at just below the average production levels of the past decade. A report released earlier this month by the UN's Food and Agriculture Organization has confirmed what many in the food industry have been fearing; that production problems and low world stocks will keep global cereal prices high this year, suggesting that the food industry's struggle to maintain margins will not end any time soon. "Supplies are much tighter than in recent years while demand is rising for food as well as feed and industrial use,"​ the Food Outlook report said. ​"Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization."​Rising food prices have been attributed to surging interest in biofuels, but the US government is also promoting an optimistic view of the pressures this has placed on all levels of the food chain. Acting Agriculture Secretary Chuck Conner last month stated the link between growing ethanol demand and higher food prices has been overstated. He forecast that supply and price pressures will even out as markets 'do their work'"Highercornprices are not the only or even, I would argue, perhaps the most important factor in higher prices of certain retail food items,"​ he told the Consumer Federation of America. In the first eight months of this year, retail food prices were about 3.6 percent higher on average that they were a year earlier. That is higher than the 2.7 percent average for the food price increases seen over the course of last three years. The current forecast from USDA's Economic Research Service (ERS) is that the consumer price index for food will be up for all of this year somewhere between 3.5 and 4.5 percent. But ERS economists also expect these increases to moderate next year back to about 3 to 4 percent.

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