Tighter Corn Supply Has Deep Implications (CORN)

While the U.S. Department of Agriculture lowered corn yields and total corn production from its October estimate earlier this week, U.S. Grains Council President and CEO Thomas C. Dorr commented that the decrease was generally anticipated and within expectations. That may not be much consolation for consumers facing potentially higher grocery bills this holiday season. For example, U.S. wholesale, frozen turkeys jumped to $1.09 a pound on average yesterday, the highest price ever and up 28% from a year earlier, according to Russell Whitman, a researcher at Urner Barry. Much of the price increase can be attributed to higher corn-based feed costs. "The fundamental reason why you're seeing record-high turkey prices is the fact we're seeing record-high costs of raising turkeys," Tom Elam, an agriculture and food-industry consultant told Bloomberg. "When both stocks are down and production is down, then you get a double hit on the amount available to be consumed." Corn prices are highly sensitive to supply, and even crops slightly below expected yield can have deep ramifications. Consumers may not realize their diet's reliance on corn, but a number of companies must buy the commodity. Most animals are fed corn-based feed, corn syrup is a popular ingredient in a lot of foods, and a number of products are based on corn derivatives. Should food producers push the higher costs on to customers, the prices of a number of goods could change. Granted, corn prices are no where near the $750/ bushel mark hit in mid-2008. But $578/ bushel today is considerably higher than four years ago, when prices sat below $250. Further, a Bloomberg report notes that "Most grocers secure their supply in February and March, and they had an incentive to do that this year because stockpiles were expected to be tight by November, [research Tom Elam] said. For those who didn't buy early or need more now, they will be forced to pay "top dollar" to preserve customer loyalty by making sure there is enough turkey at Thanksgiving, Whitman said." With all of that in mind, an informed investor is cognizant of the market risk associated with a volatile commodity like corn. Price swings are all but certain, and the bold can speculate on corn's movement in the Teucrium Corn Fund ETF CORN.