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Corn prices affecting poultry sooner than expected

The price of corn has surged to US$4 a bushel, up from US$2.50 in September, largely because of the ethanol industry's building boom. 20% of the corn crop is already being used fuel.

At the wholesale level, broiler chicken prices already are up 10% in the last two months. If corn stays above US$4 a bushel, consumers can expect higher chicken prices first, followed by higher pork and beef prices. The ethanol boom will affect prices of wheat and soybeans, too, because farmers will grow corn on acres once devoted to those crops.
Although effects within the US may be limited, they can be severe in poor countries. In Mexico this month, the government had tortilla producers agree to cap tortilla prices, which were rising with the cost of corn imported from the US.
Pat Westhoff, from the University of Missouri's Food and Agricultural Policy Research Institute, thinks there's a limit to how high ethanol can drive corn prices. Ethanol producers are seeing their profit margins squeezed. At some point, producing more ethanol will become uneconomical and expansion projects will be shelved.
In the meantime, however, a wet spring, or a drought this summer, might send corn above $5 a bushel, a level it hasn't touched since 1996.
 
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