Lower crop reserves raising food costs in election year

April 9, 2012

U.S. corn stockpiles are poised to be the smallest in 16 years by August and soybean reserves will be lower than the government expected, potentially accelerating food-price inflation in an election year.

The U.S. Department of Agriculture is likely to say this week that corn inventories on Aug. 31 will be 37 percent lower than a year earlier, at 715 million bushels, the average of 32 analyst forecasts compiled by Bloomberg show. That compares with a projection of 801 million bushels last month. Soybean stockpiles will be 242 million bushels, down from a March prediction of 275 million, the survey showed.

The government is already predicting food inflation of 2.5 percent to 3.5 percent in 2012. While that’s down from 3.7 percent in 2011, it would be higher than gains in as many as five of the past eight years. Drivers are contending with gasoline prices that have jumped 20 percent this year, American Automobile Association data show. Global food costs rose for the third straight month in March, the United Nations said April 5.

“Consumers will see additional price gains this year,” said Corinne Alexander, an agricultural economist at Purdue University in Lafayette. “There will be no relief for consumers until later this year if high prices lead to large world crops.”

Corn prices averaged $6.405 a bushel on the Chicago Board of Trade in the first quarter, 2.8 percent more than in the previous three months and the fifth-highest in data going back more than a half-century. Soybeans averaged $12.752 a bushel, 8.1 percent more than in the fourth quarter. The Standard & Poor’s GSCI Agriculture Index of eight commodities rose 1.9 percent this year.

U.S. corn reserves relative to usage may fall to the lowest ever this year, Morgan Stanley and Jefferies Bache LLC forecast. The grain, used mostly in livestock feed and to make ethanol, is the biggest U.S. crop by value, followed by soybeans, hay and wheat.

Cattle futures in Chicago reached a record $1.315 a pound on Feb. 22, partly because high corn-feed costs prompted farmers to shrink herds. Retail prices of pork chops and beef were close to all-time highs in February, government data show.

The cost of living in the U.S. rose in February by the most in 10 months as gasoline costs jumped. The consumer-price index climbed 0.4 percent, after increasing 0.2 percent the prior months, the Labor Department said on March 16. The so-called core measure, which excludes more volatile food and energy costs, increased 0.1 percent.

Food inflation of 2.5 percent to 3.5 percent would still be better than in some of the past several years. Prices advanced 4 percent in 2007 and 5.5 percent in 2008, before moderating to gains of 1.8 percent in 2009 and 0.8 percent in 2010, according to the USDA. The UN’s global food index is still about 9 percent below the record reached in February 2011.

Corn surged the most in 21 months on March 30 after inventories as of March 1 fell more than analysts forecast to the lowest for that date since 2004.

“U.S. supplies are going to be tight and that means we need good weather this year to improve inventories,” said Shawn McCambridge, the senior grain analyst for Jefferies Bache in Chicago. He said reserves before the harvest will fall to 626 million bushels, or equal to 4.9 percent of consumption, below the record low of 5 percent in 1974.


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