A recent estimation by the United States Department of Agriculture (USDA) expected this year's harvest to be 3 percent smaller than last year's record-setting harvest. Global demand is increased because of recent problems worldwide, most notably Russia's intense heat and the American Corn Belt's extremely rainy season this year. Prices are set to increase because of the demand, and as corn prices increase, so do lots of other costs from meat to gasoline.
According to the USDA's website, the 2010 Consumer Price Index (CPI) is set to increase a marginal .5 to 1.5 percent in the coming year. The costs at the grocery store are projected to increase within the .5 to 1.5 percent margin, but restaurant (food-away-from-home) foods are expected to rise between 1 and 2 percent. While this is the smallest increase since 1992, it still will affect average consumers' daily lives in multiple ways.
Basically, when you buy a piece of meat, even at the grocery store, you are also paying for the food that was used to raise that piece of meat, and everything involved in its slaughter, etc. Globally, cattle are generally raised on corn and other grains, and when the prices for those commodities increase, so does the cost of raising that cattle to the point of slaughter. Farms do not try for only beef profits, but seek farm-wide net profits. As it becomes more expensive, rather than increasing beef four dollars per pound to make up the losses, they increase, for instance, the prices of several types of vegetables in smaller increments to even out. As profits increase for farms, government subsidies decrease, and consumers foot the cost. At the grocery store, consumers see small increases on lots of different purchases, and the entire bill inflates.
“We can live with high commodity prices for a period without seeing much impact at the retail level, but if that persists for several months or a couple of years, then it eventually has to get passed on” to consumers, Darrel Good, an emeritus professor of agricultural economics at the University of Illinois, told the New York Times.
Dr. Good was referring to impacts on retail that exist outside of agriculture. Many people look past the fact that corn is not only a food, but also used for fuel. Ethanol, and its increasing presence in the oil industry, is a derivative of corn used for making biofuels. Current government mandates imposed upon oil companies to encourage the use of ethanol, assure corn's strength, and the market is expected to remain strong. However, as ethanol markets continue in high demand, the demand for all corn use increases, shrinking the amount of corn used for food and livestock, and prices are again re-evaluated. Once more, consumers are ignored and small businesses, who rely on these prices and commodities, suffer.
The most staggering aspect of the corn industry's recent estimations and price hikes, is that it really will affect all of our lives in one way or another. Gasoline prices alone can change everyone's life, as most shipments are made by ground, at least at a local level, and as shipment costs increase, so do in-store prices. When such important and trickle-down prone markets like corn seem volatile, commodity traders get scared, and consumers pay for it.
