The United States Department of Agriculture (USDA) dropped a bomb in early 2007 that can have a profound impact in the coming years on how we meet our need for cheap food and fuel.

In a report that measured the previous year’s corn crop, the USDA revealed that there was much less corn available than many experts had estimated. We all know what happens when demand exceeds supply. The next day, January 12, 2007, the price of corn soared.

Why should you care?

Sorry to be the bearer of bad news, but the skyrocketing price of corn may mean your food, energy, and housing bills will skyrocket.

You may be wondering, how can a simple grain like corn wreak so much havoc on my economy?

The answer is simple. Corn is not just that yellow grain that we chew every summer. Corn is used as feed in the meat and poultry industries. So expect those protein sources to go up in price. Corn is also used as a sweetener. But the taste can be bitter as the price of cereals, breads and sweets skyrockets.

But most importantly, America’s cornfields have become a new battlefield. And the fighters are those who need cheap food to survive and those who believe that corn is the panacea for high energy prices.

The rise in cereal prices is the result of growing interest in developing alternative fuels. Ethanol, which is derived from corn, is one of the most popular contenders.

Last year, in an article for Fortune magazine, Lester Brown, president of the Earth Policy Institute, said that demand for corn can have disastrous consequences. “The growing myth that corn is a panacea for our energy problems is leading us into a potentially dangerous global fight for food,” he wrote.

Brown believes that the competition for corn will mean that “cars, not people, will claim most of the increase in world grain consumption.”

Long before the USDA report was released, the price of corn had enjoyed a good rise. After hitting near-record lows in the summer of 2006, a pattern that has occurred almost every summer in the 21st century, corn began to move. By the end of November, the grain had risen more than $ 1, bringing the March 2007 futures price to about $ 3.90 a bushel.

Future traders who saw an opportunity in low prices last year are certainly satisfied. Every $ 1 in move-in price pays $ 5,000 per contract.

But Brown believes that rising food prices will endanger the lives of the world’s poorest people.

Jason Kottle, who blogs at Kottle.org, is concerned that one of the nations hardest hit by rising corn prices is the United States’ neighbor: Mexico. “Corn (maize) was probably first domesticated in Mexico and it continues to be the cornerstone of Mexican cuisine.”

And Mexico imports a large amount of corn from the United States because it is cheaper than local corn, Kottle wrote on his November 7, 2006 blog.

Meanwhile, at Lovecraft Biofuels in Silver Lake, California, Brian Friedman is converting late-model diesel-powered Mercedes Benz cars to run on vegetable oil. And business is booming, according to the Los Angeles Times.

Friedman’s company is driven by the notion that people can free themselves from the energy of the Middle East. But someday, not too far in the future, the owners of those cars may have a rude awakening.

Imagine those alternative fuel vehicle drivers strolling down the aisle of the store looking for food to fuel their car. They hit the corn oil shelf and find that the price has doubled and now they’re paying more for fuel than their neighbors who drive those old-fashioned fuel-injected hot-rods.

Is there a solution?

In my previous article Coverage of Household Expenses: Families can learn the secrets of corporate finance. I make it clear that individuals and families should not settle for higher prices.

In fact, families around the world cannot afford to tolerate inflated prices on food, housing and clothing, much less fuel.

For a free tutorial on grain trading, visit the Chicago Board of Trade website. Click education> publications and then search Introduction to trading CBOT agricultural options and futures.

Copyright 2007