Corn supply expected to rise, easing food prices

Corn supply expected to rise, easing food prices

By Christopher Leonard, Associated Press
Updated 3h 11m ago |

ST. LOUIS — Corn has become too expensive for some overseas buyers, leading to a drop in demand that could ease the country's tight supply and bring food prices down later this year.

The Agriculture Department estimated Wednesday that U.S. corn exports are going to drop about 50 million bushels this summer. That would help boost the year-end corn surplus to 730 million bushels in late August, when the harvest begin — an 8% increase from the previous estimate.

An even larger corn crop is being planting now. The government projects the supply will grow to 900 million bushels by late 2012.

That's likely to ease supply concerns and push global prices lower. Corn prices have more than doubled since last summer and closed Tuesday at $7.07 a bushel. That just shy of the all-time high of $7.76 reached on April 11.

Investors typically like to see a surplus of corn that could feed the U.S. population and supply U.S. feed and ethanol producers for 30 days. The current projected surplus would last nearly 20 days, up from last month's estimate of 18 days. By next year, the government expects the supply would satisfy U.S. demand for 24 days.

The price has risen as growing demand from ethanol producers and overseas consumers has outstripped supplies. As corn became more expensive, it pulled wheat and soybean prices higher. That's partly because farmers planted less acreage of those crops and focused on planting corn to cash in on the high prices.

The government report suggests that the high prices are finally curbing demand, at least overseas. Corn exports are likely to decrease about 3 million bushels a week until August.

"The idea behind that is that prices are high enough to ration demand," said Jason Ward, an analyst with Northstar Commodity in Minneapolis. Corn prices began falling last week as investors sold off contracts in commodities from oil to grains and metals, betting that consumers will start cutting back spending in light of high prices.

Higher corn and soybean prices affect most products in supermarkets. The crops are used to feed livestock and chickens and are the main ingredient in cereals and soft drinks. But it can take months for high crop prices to work their way to the grocery store shelves. That's because food processors and grocers are reluctant to pass on the higher costs to consumers when unemployment is high.

http://www.usatoday.com/money/industrie ... crop_n.htm