US Govt's Options In Potential Corn Crisis Limited

CattleNetwork.com
6/16/2008 5:59:00 PM

WASHINGTON (Dow Jones)--Concerns are mounting quickly that a sharp drop in U.S. corn production this year could create far tighter supplies than expected, and the government has few options in averting a potential crisis pitting the ethanol industry against livestock producers in a bidding war that would further drive up corn prices.

Extremely wet weather and flooding in the Midwest is taking a sharp toll on corn production, although the full extent of the damage is still unknown as many farmers wait to see if conditions will dry up enough in time to plant.

Just last week, the U.S. Department of Agriculture lowered its 2008 corn production forecast to 11.7 billion bushels, roughly 3% less than the May forecast. The new 2008 estimate is about 10% below what farmers harvested last year, when acreage was significantly larger.

Government intervention seems likely, according to a report this week by Citi Investment Research, but that may have to come from Congress because Bush administration officials, unlike the the food manufacturing and livestock industries, don't yet seem worried.

Asked if there was anything the USDA could do if corn production estimates continued to fall, Deputy Secretary Chuck Conner suggested there was, but wouldn't comment on details. "I'm not going to speculate on our other options because of market sensitivity," Conner told Dow Jones Newswires.

"It's way too early to begin getting out there bouncing options off the wall, hitting the panic button." If the USDA does decide it needs to act, though, officials there are going to have to get "creative," Agriculture Secretary Ed Schafer told Dow Jones Newswires.

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