Corn supplies jump, easing shortage worries

A larger corn crop is easing concerns of a grain shortage and could slow food inflation later this year.

A larger corn crop is easing concerns of a grain shortage and could slow food inflation later this year.

The U.S. Agriculture Department estimated Tuesday that 880 million bushels of corn will be left over when the harvest begins in the fall. That's an increase from the previous estimate of 730 million acres.

Corn prices rose about 9 cents to $6.42 a bushel in morning trading because the projected supply increase wasn't quite as big as analysts had forecast. Still, prices are about 20 percent lower than the record $7.99 a bushel they hit in early June.

Higher corn prices led farmers to plant the second biggest corn crop this year since World War II. The surprisingly big crop helped offset growing demand from the U.S. ethanol industry and overseas livestock producers.

A bigger crop doesn't 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 won't yield much grain. Many farmers planted during wet weather just because they knew they could get the crops insured.

Traders will be watching the weather in Iowa, Illinois, Nebraska and other critical farm states to make sure this year's crop comes off as promised. The USDA estimates farmers will grow an average 158.7 bushels of corn on every acre planted.

If that figure drops by even 2 bushels an acre, the supply picture could become just as grim as it was a month ago when corn traded at record highs, said Jason Ward, an analyst with Northstar Commodity in Minneapolis. "Now, all the market focus will shift to weather, and U.S. weather alone," Ward said.

A drought across the South, from Arizona to Florida, shouldn't have a big effect on the nation's corn, wheat or soybean crops, Ward said. But it could stunt cotton production. The USDA now estimates farmer will produce 16 million bales of cotton from this year's crop, down from 17 million it predicted last month.

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 U.S. Analysts say consumers could see some relief at the supermarket by early 2012.

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

Farmers switched their acreage into corn when corn futures rose. The size of this year's corn crop will be 92.3 million acres, about 9 percent larger than the average annual corn crop over the past decade. The only crop bigger in the past 67 years was planted in 2007.

Farmers chose to plant corn at the expense of this year's soybean crop. They planted only 75.2 million acres of soybeans, about 3 percent less than last year. Farmers have a limited supply of good farmland and usually trade one crop for another on their acreage.

The USDA estimates the soybean supply will be a little bigger in August that expected last month, with the reserves rising to 200 million bushels from 180 million. But the decision to replace soybean acres with corn will pinch next year's supply, but not drastically. The USDA now predicts there will be 175 million bushels on hand next fall, down from the 190 million predicted last month.

Higher corn prices make soybeans and wheat more expensive because farmers plant less of them. Soybeans rose 4 cents in morning trading to $13.52 a bushel.

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