DES MOINES, Iowa (AP) — A surprising drop in the U.S. corn and soybean crop sent grain prices surging to their highest level in 2 1/2 years Wednesday. The price increases stoked concerns about higher food prices and tighter supplies of feedstock for food and biofuels.

Wet weather and abnormally higher temperatures contributed to lower U.S. corn production in 2010, according to a report from the U.S. Agriculture Department. The report also showed declines in soybean, wheat and grain sorghum production.

January corn futures jumped between 20 and 25 cents to $6.30 a bushel. Soybean prices jumped between 50 and 60 cents to just over $14 a bushel.

The report confirmed traders’ fears that historically low stockpiles of grain and oilseeds could leave little buffer in coming months as demand rises with a growing global economy. Prices reached their highest points since the financial crisis of 2008 caused a collapse in global demand for food and fuel.

“It’s just confirming that supplies are lower than we thought, and demand is better than we thought, and when that happens you see prices bidding up,” said Chad Hart, an Iowa State University grain marketing specialist.

It can take months for higher grain prices to work their way to the grocery store. Raw ingredients are just a fraction of the cost for processed foods.

But companies like Hormel Foods Corp. have already announced price hikes of more than 3 percent this year. Higher grain costs will put more pressure on them to pass costs along to consumers.

U.S. corn production dropped 5 percent in 2010 to 12.4 billion bushels but remained the third-highest level on record. The record was set in 2009, when 13.2 billion bushels of corn were harvested.

At issue is the amount of grain being carried over from year to year. That’s a crucial surplus that creates a buffer for global markets. The report shows that stockpiles of corn are among the lowest levels ever seen at just 5 percent of the total amount of corn used, said Hart, the Iowa State grain marketing specialist.

The report shows that just 745 million bushels of corn will be stockpiled by August 2011, down about 1 billion bushels from August 2010.

“That’s a significant drop,” Hart said. “Normally we like to keep those levels above 10 percent.”

Anthony Prillaman, an analyst with the USDA’s National Agricultural Statistics Service said weather was the primary factor for the decrease.

“Everything shows that normal or above normal temperatures in August reduced the yield potential for corn,” he said. “Especially in the Midwest and especially the nighttime temps. They were above normal and stressed the crop.”

Hart said demand continues to rise, with the ethanol industry being the largest sector of growth in the industry and eating into the stockpiles The largest demand remains the livestock industry but demand by the ethanol industry is seeing larger growth.

A similar issue with decreased stockpiles is being seen with soybeans, wheat and cotton, Hart said.

“Things were already really thin with soybeans and have been for the past three years that this report, although it’s small changes, it shows things aren’t getting any better as far at that stock situation,” Hart said.

Soybean stock supplies are at 4 percent, down from 5 percent the previous year.

Soybean production fell just 1 percent in 2010 to 3.33 billion bushels with average yields of 43.5 bushels per acre.

Travis Thorson, a soybean analyst with the USDA said that was down from about 3.4 billion bushels and 44 bushels per acre in 2009 and was the second highest on record behind 2009.

He said fewer soybean acres were planted in the southern U.S. as farmers may have rotated crops.

Wheat production fell 1 percent to 2.21 billion bushels in 2010 but saw record yields of 46.4 bushels per acre. Grain sorghum fell 10 percent to 345 million bushels last year.

Cotton was a bright spot, with the report indicating that production rose significantly in 2010. Cotton production jumped 50 percent in 2010, in part because the number of acres harvested rose 42 percent, said Steve Maliszewski, a USDA analyst.

“Last year we had a lot of abandonment in Texas, about 1.5 million acres, because of severe drought in 2009,” Maliszewski said.

But he also said increased cotton prices may have contributed to more cotton acres being planted in 2010.

Minnesota and Wisconsin were the two bright spots in corn production in 2010 with both states setting records. Minnesota produced nearly 1.3 billion bushels of corn in 2010 with average yields of 177 bushels per acre. Wisconsin produced 502.2 million bushels of corn with 162 bushels per acre.

Iowa remained the top corn producing state despite decreases in production with 2.15 billion bushels and 157 bushels per acre. Illinois came in second with more than 1.9 billion bushels and 157 bushels per acre.

Except for Wisconsin and Minnesota, “the entire corn belt showed a decline,” Prillaman said.

He said pressure is being applied to the markets as traders watch to see if the 2011 crop will be big enough to meet demand without further lowering the stockpiles.

Hart, the Iowa State grain marketing specialist, said that as commodity prices rise, meat prices could, too. But he said that is a “delayed response of maybe four, five or six months down the road.”


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