Were low prices just a summer vacation?

The two main factors behind food prices, corn and oil, took hits this week that could increase food prices into the winter.

First, while the country begins the rescue and recovery of those affected by hurricane Ike, market watchers are seeing the first signs of the impact Ike will have on the nation's business sector. The hurricane caused about a fifth of the nation's oil refineries to be shut down. These refineries accounted for 20% of the national's oil. While some Texas residents saw prices spike as high as $5.00 a gallon, experts do not think the entire country will see prices get that high. There is also hope that if oil remains low and that the refineries get back to production quickly, we could see prices fall. MSNBC Reports:

(Tom) Kloza (with the Oil Price Information Service) said prices are more likely to be higher throughout the Southeast because they get fuel from Gulf refineries. He expects nationwide prices to begin falling later in the fall, perhaps as low as $3 a gallon by year's end, based on current oil prices of about $100 per barrel.

Secondly, despite news that this year's corn and soybean crop will still be some of the largest on record, the Agricultural Department trimmed its projections. The New York Times Reports:

The Agriculture Department reduced its forecast for corn production to 12.1 billion bushels, from its 12.3 billion estimate last month. The department projected the soybean crop to be slightly lower, at 2.93 billion bushels, down from an earlier estimate of 2.97 billion.

The news caused corn and soybean futures to rally, with corn taking more than a 5% increase, to end at $5.63 per bushel. The report was issued before the markets opened on Friday, causing major meat producers such as Tyson and Pilgrims Price to suffer stock losses in the morning. By the end of the day, however, most major companies had recovered. You can read more about how the report affected companies via Forbes.com.

How bad is the news? The Chicago Tribune reports that it is not just the trimmed projection, but the details of the report that could potentially have negative affects:

The report indicated that dry weather in August is taking a toll on production, just as lower prices kicked up demand for corn and soybeans. As a result, the harvests might not be large enough to replenish corn and soybean stocks going into next year.

That is certain to put pressure on food industry manufacturers and consumers, who are contending with higher prices for everything from milk to steak.

With demand for corn and soybeans up next year, farmers will have to choose which crop should cover the majority of their fields. Much of that choice will boil down to which crop generates the highest profit, which will be decided largely by prices in the futures market.

"We're going to have a huge battle for acres next year," said David Hightower, editor of the commodities newsletter The Hightower Report.

Further Reading:

MarketWatch on Friday's corn rally.
NPR on Ike and the oil refineries.
The Wall Street Journal on the soybean stockpile worries.

Picture by Noel Zia Lee. The original can be seen here.