The U.S. corn crop estimates are sharply lower compared to last month, and traders are watching to see if corn prices hit new all-time highs in response to that report. With flooding, drought, and other bad weather, many fields were not planted, and some of the fields that were planted have fared poorly. Corn inventories, already low, will go lower next winter. Wheat might be used as a substitute for corn, but wheat crops have also been reduced by unfavorable weather in the United States and Canada.
Along the way, with a shortage of corn, corn prices are sure to go higher than the pre-recession peak. Then, high corn prices led to historic high prices for meat and dairy products, and that pattern will likely repeat, but I expect meat and dairy prices to rise faster and farther this time, as cattle ranchers and dairy farmers can see the higher costs coming and will be eager to avoid absorbing the losses they recorded in 2008 and 2009. They’ll reduce their costs by producing less. I believe we won’t see the same glut of milk and beef that muted the spike in prices three years ago.
U.S. consumers are still under financial pressure and will be forced to cut back again on their meat and milk purchases. Ice cream, again, may be hit hardest, as consumers are already resisting ice cream prices close to $10 per gallon. The ice cream section in supermarket freezers will have to shrink further, especially after summer is over, as consumers buy ice cream in smaller containers and less often.
Ice cream might seem expensive at $11 per gallon, but most meat prices are much higher than that, and were already forecast to go up about 10 percent compared to last year, before the new corn report. If you want to save money, it will be a good year to cut back on meat.
Corn is also a significant component of the U.S. gasoline supply, and the higher corn prices will raise fuel prices by at least 1¢ per gallon.