Corn is a mighty hot commodity these days.
Prices soared this month after weather damage across the cornbelt led the U.S. Department of Agriculture to predict lower yields than previously expected. Some agronomists and farmers predict yields will likely be even lower than that because of ongoing heat and drought.
All the while, demand for corn seems to be insatiable the ethanol industry, livestock and export markets can't seem to get enough. Economists say demand will likely continue to outstrip supply for some time, keeping grain prices and the cost of food high.
This flurry of high corn prices has traders flocking to the commodity, in some ways treating it like the new gold. Traders are speculating on corn prices well into 2013, and there are some bets on corn futures even further out. Money in corn futures is five times what it was in 2004, according to numbers from the Chicago Mercantile Exchange. That's a nearly $2 trillion market for corn alone.
All this market frenzy has farmers some just weeks from harvest hoping for rain.
On his farm just outside Des Moines, Iowa, Vernon Flinn recently walked his cornfields with two grain buyers from Heartland Co-op to check on yields. Flinn twisted off an ear of corn to examine how the heat had damaged it.
"This ear is probably 16 rows around, and it looks like probably four, five kernel rows right there, and that row is aborted or will not fill," said Flinn, after peeling back the corn husk and counting off the dead kernels along the tip of the corn.
Still, when they measure the ears and count kernels back at the pick-up, Flinn estimated a pretty decent crop about 170 bushels per acre, compared with the 153 projected nationally.
Farmers hit by flooding in Missouri and those wracked with drought in Kansas are looking at lower yields.
But far more acres of corn were planted this year, so even though flooding and drought lowered yield-per-acre estimates, harvest time could still bring a good-sized haul in places that avoided the worst of the weather damage. Like in Nebraska and Iowa, where record yields are predicted 1.9 billion and 2.4 billion bushels, respectively both a hair above each state's 2009 records.
But the national corn yield won't be enough to meet demand, said Iowa State University economist Chad Hart. Demand from the ethanol industry, livestock feed and export market continues to outstrip predictions, he said, and that's why grain prices have soared.
"When you look last summer, we had corn prices in some cases down around $3.50 a bushel, now we're up in $6, $7 range, so we've seen nearly a doubling of prices over the past 15 months," Hart said.
The USDA report suggests that grain prices will stay elevated over the next year or so. Corn stockpiles are nearing a 15-year low and soybean stockpiles have been tight for at least four years. And in the last few months, another player has taken a bite out of the U.S. corn market.
"China's been a very early buyer of the corn crop we're growing now," Hart said. "And that's been something that has market worked up right now."
China bought some 21 million bushels from the United States in July, its biggest purchase in 15 years.
Now, high grain prices are usually good news for farmers. They helped Vernon Flinn buy a new tractor.
But today's even higher prices mean even higher stakes. And Flinn said selling in this volatile market comes with risks.
"I mean you're kind of scared to sell it for fear you're going to miss the rally, and you're scared if you don't you sell it for fear we're going to say, 'Oh heck, we should have sold it all last time,' " he said.
Driving his truck over to the next cornfield, Flinn and corn buyers Nick Hyde and Ron Groskreutz discussed what every farmer struggles with: enormous swings in the market.
"It was a lot more fun when corn was $3 and it would move, maybe the limit was 10 cents, and if it moved 10 cents in a day, you know, that was huge," Flinn said.
"When I got in the business, if it moved a nickel in a day, you were looking for a meteorite," Hyde said.
Flinn said this year corn prices have averaged moving an astonishing 22 cents a day.
"I've always said, high-priced corn doesn't do anybody any good," he said. "If corn goes high, everything else follows suits whether it needs to or not, and all it does is cause financial havoc. It just takes a lot more money for us and the co-op to do business."
Added Hyde: "The cure to high prices is high prices."
Farmers and traders alike are getting pretty worked up over the possibility of $8 a bushel corn. But for consumers, this market frenzy translates into higher food prices. Grocery items that rely heavily on grains like meat, butter, eggs are likely to keep going up. And much of it traces back to corn, which just may be the emerging gold standard of agriculture commodities.