Is the price of corn too low?

Is the price of corn too low? Is the rising price of corn feeding through to inflation in the price of food. The answer may not be as clear cut as first appears, sure the price of corn has increased greatly, from a lowish base over the past couple of years, but some research done in October last year and lurking in the Colorado Corn Growers Association‘s website paints a different picture. (below) sourced from StrathKirn® Inc.

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In a press releaseDr. Jim McLaren, president of StrathKirnm says

“the $2 price increase in corn simply isn’t the accurate cause for the
massive inflation in the food chain. When you consider that a 14 oz. box of corn flakes contains
just 3 cents worth of corn, even a doubling of the corn price doesn’t have that much impact.”

Most of the increase in food prices is down to the increase in oil costs, says McLaren. Worryingly for the biofuel industry and the rest of us the report adds…

“Looking at the facts, it is simply inaccurate to think corn price increases have a large
impact on food prices. In fact, it suggests that corn has been under priced, especially considering
the market value of it as a replacement for crude oil.”

I guess part of the reason that we can afford to eat bread in the era of $90+/bbl oil is that there is currently a disconnect, or only a weak connection between the price of grains and the price of crude. I also guess that if the proportion of world crop of food grains that goes into gasoline substitutes increases then the connection between the two prices will strengthen. Finally, it will be the marginal bushel in the market that is prepared to pay the most that sets the price for grains. Currently there is an excess of grain production over consumption and until the market gets a lot tighter the link will remain weak. It wont’ stop people linking that the corn price is rising because of ethanol production.

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