Corn price hits new highs

Corn prices are back at record levels due to rising demand and tight supply, while inventories are expected to decline to their lowest levels since 1996 by the end of the 2008-2009 season.

Corn prices are back at record levels, with US futures hitting a new peak of $6.30 a bushel last week; they have jumped by about 75% in the past year and 40% this year alone. And as Barclays Capital has noted, further price gains are likely.

Global food demand is rising as diets become more protein-based amid mounting wealth in emerging markets; corn is used mostly for animal feed.

Record oil prices are fuelling demand for alternative fuels, such as corn-based ethanol. According to the American Department of Agriculture, the US biofuel industry will consume 33% of America's corn crop in the 2008-2009 season, up from 22% a year earlier.

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On the supply side, the situation is "dangerously tight", Gavin Maguire of Iowa Grains told the FT. American farmers are set to reduce their corn planting acreage by around 10% this year as they chase high soybean prices and production will slide to 12.1 billion bushels from 13.1 billion last year.

Inventories are expected to decline to their lowest levels since 1996 by the end of the 2008-2009 season, 45% down on this year. No wonder, then, that some analysts are warning that corn could hit $7 a bushel in 2008.