Rising oil prices and dwindling stockpiles lead to record corn prices. Sound familiar?
Corn prices yesterday rose to highs of 2.45 per cent above their past highs of June 2008, when the same combination caused a similar effect.
Corn futures have increased 22.9 per cent since the start of the year to hit US$773.25 a bushel.
A report from the US agriculture department showed US corn stocks had fallen to 6.52 billion bushels on March 1, down 15 per cent from the same month last year.
The department's World Agricultural Supply and Demand estimate, scheduled to be released today, is expected to make distressing reading for food-importing countries.
"The market's waiting to see what happens there," said Erin FitzPatrick, a commodities analyst at Rabobank. "As a result of lower stocks, we're expecting they're going to reduce ending stocks again for the entire year."
Economists are now predicting another cycle of cost of living increases in emerging markets, as food suppliers adjust to tightening markets for food supplies worldwide, according to a report from Goldman Sachs.
"We expect food prices to continue to rise and push emerging market headline inflation higher until the summer months," the report said.
As recently as last month, prices were depressed as Japan's disasters reduced demand and unrest in the Middle East led to a "dramatic pullback in risk appetite", Ms FitzPatrick said. But consumption of corn, particularly as fodder for livestock and for use in bio-ethanol, has swiftly recovered.
"There had been no change in the underlying fundamentals," she said.
In addition, with New York Mercantile Exchange crude futures prices at $109.13 a barrel and Brent crude at $121.86 a barrel, blending ethanol was again starting to "look competitive to gasoline", Ms FitzPatrick added.
A 45 cents a gallon tax credit available for ethanol in the US was also looking increasingly attractive to American farmers, meaning more farmland was being turned over to that use, she said.