In the past month, corn futures hit an all-time high of over $800/bushel due to a lackluster growing season. The Midwest droughts have caused some farmers to mow down the crop to salvage it for silage and livestock feed.
While the exact percentage of foods that contain corn and corn byproducts is unknown, it is a guarantee that any time consumers purchase goods from the supermarket, a majority of those goods contain corn in some state. According to the Great Smokies Medical Center of Asheville, N.C., the following foods contain corn, cornstarch or corn syrup: baby foods, bakery items, beer, soda, cereals, condiments, gum, baking powder, flour mixes, gravies, sauces, canned fruits, soups, frostings and icings, tortillas, ice cream, candy, peanut butter and margarine just to name a few. Even meat that we eat from the local deli was once fed grain containing corn.
Corn is used in adhesives, stamps, talcum powder, paper cups, toothpaste, medicines and chalk. We are exposed to corn in some state every single day of our lives.
In the past two decades, ethanol research has begun to take maize off of the grocery shelves and put it into automobile fuel tanks. According to The Guardian, 25 percent of U.S.-grown corn goes into ethanol research instead of food. This explains the dramatic increase in the price of corn, up to $800/bushel from $200/bushel in January 2006.
Consumers have been curious for quite some time now why their grocery bills have steadily increased in recent months and years; corn prices are the reason. Combine a crop which increased 300 percent in price in under a decade with fuel costs which have increased 50 percent in the same time (fuel that is used not only to harvest but transport the crop) and you have dramatically higher prices.
Many would argue that these high prices are the result of inflation but that is not the case. As we have previously mentioned, inflation may perhaps be a long-term issue, but it’s not a cause for concern yet. In fact, when adjusted for inflation, corn was at its most expensive back in 1983.
With the growing season coming to a close, there is little that farmers can do at this point to increase corn supply. Supermarket prices will likely remain high until next summer, at which point farmers will hope for a more profitable season. There are things that could be done. If the U.S. were to put ethanol research on hold, prices would likely decline. Another option would be for researchers to find alternatives to corn syrup and cornstarch in the goods mentioned earlier. However, until we can increase corn supply by reducing ethanol, recording a phenomenal growing season or by researching alternatives to corn byproducts, expect to see your grocery bill on the rise until next summer.
Ben Treece is a 2009 Graduate from the University of Miami (FL), BBA international finance and marketing. He is a partner with Treece Investment Advisory Corp. (www.TreeceInvestments.com) and a stockbroker licensed with FINRA, working for Treece Financial Services Corp.
The above information is the express opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
