July 2, 2011

 

US corn prices plummet after bigger-than-estimated crop forecast

 

 

US farmers have planted the second-largest corn crop in nearly seven decades, the USDA reported Thursday (Jun 30), triggering a sharp decline in prices.

 

The size of this year's corn crop will be 92.3 million acres, the department said, 9% more than the average annual corn crop over the last decade. The only crop bigger in the last 67 years was planted in 2007.

 

Many analysts had worried that wet weather this spring would cut the number of corn acres. But high prices encouraged farmers to use more acres for corn, and less for soy and wheat.

 

A larger crop estimate drove corn futures 30 cents lower, to nearly US$6.21 per bushel. That is the maximum price change allowed by futures exchanges. Corn rose to a high of US$7.99 per bushel in June.

 

More expensive grain has led to food price increases this year. That could ultimately make everything from beef to cereal to soft drinks more expensive at the supermarket. For all of 2011, the department predicts food prices will rise 3% to 4%.

 

A huge harvest in August could ultimately slow food inflation. It typically takes six months for changes in commodity prices to affect retail food prices in the US. Analysts said consumers could see some relief at the supermarket by early 2012.

 

Industry traders had expected 90.8 million acres of corn to be planted. Knowing that far more corn is in the pipeline will likely pull grain prices down significantly this summer, Mr. Ward said.

 

Farmers chose to plant corn at the expense of this year's soy crop. They planted 75.2 million acres of soy, about 3% less than last year.

 

Farmers have a limited supply of good farmland and usually trade one crop for another on their acreage.

 

A separate report from the USDA on Thursday estimated the US had 3.67 billion bushels of corn in storage. Most analysts were expecting a reserve of 3.3 billion bushels, analysts said. If the reserve estimate is accurate, it means backup supplies could be higher this year and next. That would ease fears of a July 1, 2011

 

Still, in August corn reserves are expected to hit their lowest level since 1995, according to the most recent department estimate. Global demand from ethanol producers and livestock owners has risen faster than farmers' production over the last decade.

 

Higher corn prices make soy and wheat more expensive because farmers plant less of them.

 

Raised expectations for this fall's corn crop also helped lower soy prices in trading on Thursday. Soyb fell 29 cents to US$12.94 a bushel.

 

A bigger crop does not guarantee lower food prices. A drought or flood could limit the size of the harvested crop.

 

Many of the acres planted this spring were on marginal land that would not yield much grain, analysts said.

 

Corn is a key ingredient in feed for poultry and livestock, and a staple in many processed foods. When corn prices rise, food processors and grocers pass along the higher costs to the consumer.