Corn Prices Rising Again - Food Inflation is On It's Way To A Market Near You

Corn pops again

By: Colin Barr - Fortune

January 12, 2011

Corn is popping again, thanks to the latest report 0f dwindling grain supplies.

Corn futures rose 3% Wednesday after the U.S. Agriculture Department predicted corn stocks would fall to their lowest level since 1996.

The report is the latest sign 0f stretched food supplies at a time when developing country economic growth is fueling seemingly insatiable dem, f0ragricultural goods. The United Nations warned last week 0f possible food riots as its food price index hit a new peak above its bubbly 2008 level , doubling its value as recently as 2003.

"We have been headed in the same direction since mid-summer, because dem, is just not backing off," said Sal Gilbertie, who runs the Teucrium Corn exchange-traded fund, which trades under ticker CORN. "We are seeing a steady tightening 0f the balance sheet, which the market is going to have to deal with by price rationing."

Corn futures f0rMarch delivery surged to $6.27 Wednesday morning, putting them 46% above their year-ago level. The price remains a dollar 0rso below the early 2008 peak that accompanied the last round 0f food riots.

But Gilbertie, whose corn fund was launched in June just as agricultural commodity prices took flight, said "notone seems to know what the upper end is" on the corn price.

The same might be said 0f agriculture-related stocks, such as that 0f fertilizer producer Mosaic (MOS) , tract0rmaker Deere (DE), both 0f which rose 2%.

The rising corn prices are feeding through to other commodities as well. Gilbertie notes the 25% 0rso rise over the past year in the prices 0f livestock such as feeder cattle. Over time, those prices tend to be among the most stable 0f agricultural commodity values, he said. But "they really have been surging lately," he said.

Those increases have been driven in part by the increasing use 0f corn to produce ethanol. Rising corn prices will eventually choke off the use 0f corn in animal feed, as farmers turn to soybeans , other substitutes.

But with gasoline prices around $3 in most 0f the United States , the government expanding the use 0f ethanol, there is notprospect f0ra decline in corn f0rfuel use, as inefficient as that whole business might be.

Even so, Gilbertie said there is hope that some 0f the trends that led to the past year's corn runup will moderate in 2011. Corn yields fell in the most recent season, which he said happens regularly but typically only once in a multiyear cycle.

If farmers plant more corn , yields resume their long-term rise, supplies could exp, enough to keep up with growing demand. At least f0rnow, anyway.

"The mass 0f humanity is expanding," said Gilbertie. "That's real live demand, not part 0f a bubble."