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January 22, 2013

Corn prices could soar or crash, Iowa State economist predicts

Corn ending stocks are projected by USDA at "dangerously low levels." Those low levels, coupled with ongoing drought, could send prices soaring or crashing just as they did in 2008 and 2009, when prices rose to record-highs only to crash following the Great Recession, according to Chad Hart, agricultural economist at Iowa State University, in an interview with AgWeb.com. USDA puts the stocks-to-use ratio for U.S. corn at only 5.3 percent, well below the historical average of 12 to 13 percent, and one of the lowest stocks-to-use ratios ever, Hart noted. Last year’s corn stocks-to-use ratio was 7.9 percent, and the year before that, the ratio was 8.6 percent. The "worrisome thing" about having such a low stocks-to-use ratio for corn is that subsoil moisture is short across most of the western Corn Belt, where drought still lingers, Hart said.

"The potential for price volatility is just as great in 2013 as we saw in 2008," said Hart. "With continued drought, we could have record-high corn prices." If the drought ends, and the U.S. crop is a bumper, the worry is then that corn prices could plunge. "And the threat of recession still hangs over the market as well," he added. Severe or extreme drought conditions now cover 86 percent of the Corn Belt region, with moderate drought covering 93 percent.  Read More

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