March theme: Biodefense & food supply safetyU.S. growing dependence on corn increasingly worries economists
The U.S. economy’s dependence on corn — to feed dairy cows and egg-laying hens; fatten cattle, hogs, and chicken; make sweet soda; and meet ethanol mandates — leads economist to warn of a “corn shock” in case of a drought across the Midwest
Corn is an essential element of the U.S. food supply: It is what dairy cows eat to make milk and hens consume to lay eggs. It fattens cattle, hogs, and chickens before slaughter. It makes soda sweet. As the building block of ethanol, it is now also a major component of auto fuel. The Los Angeles Times’s Jerry Hirsch writes that this may well signal trouble ahead. Economists are cautioning that the U.S. growing dependence on corn would make for a double jolt in the event of a drought across the Midwest: soaring prices not just for food but also for gasoline. Analysts now warn that a “corn shock” might not be far off — and it could lead to $5 gas and $3.50 eggs as the effects reverberate across the economy. “We are replacing price volatility from the Middle East with Midwestern weather price volatility,” said Michael Swanson, a Wells Fargo & Co. vice president and agricultural economist. Such a disaster would occur against a backdrop of soaring prices for basic food items and other commodities which are already stressing the economy. Coffee is up 21 percent to date, platinum 42 percent, and already high oil an additional 6 percent.
After a torrid 2007, corn prices have risen an additional 20 percent this year because of global demand for livestock feed, sweeteners, and ethanol. The rush by American farmers to forgo other grains to plant cash-producing corn, and weather problems, have squeezed wheat supplies, pushing the price of that grain up 21 percent. Soy has risen 25 percent this year. Analysts are already simulating what would happen if a drought hit the corn belt. Bruce Babcock, an agricultural economist at Iowa State University, estimates that corn could reach $8 a bushel from $5.46 now. It could happen as soon as this summer. “The risk of a drought right now is higher than normal because of the La Niña we are seeing,” Babcock said, referring to the cooling of ocean temperatures that often has a drying effect.
Mother Nature is fickle. The United States has suffered four major weather disasters since 1971 that wiped out 21 percent to 29 percent of the corn crop at a time. Periodic bad weather, including droughts, scorching heat waves and cold, cloudy spells at just the wrong time, has reduced harvests by billions of bushels. Previously, these disasters have raised food prices. The
