U.S. Farmers Plant Record Number of Corn in Attempt To Offest High Prices

Murmurs of Food Inflation Become More Pronounced

By Nathan Holl
Friday, March 30th, 2012

A drop in American corn storage reserves is leading to concerns that supplies of the crop will remain scarce, causing high prices from food to fuel in the near term.

Prices for the crop skyrocketed the most in 21 months while wheat and soybean prices went up after a forecast by the U.S. Department of Agriculture signaled tighter crop supplies, refueling concerns the rate of food inflation will speed up.

According to the U.S. Department of Agriculture, corn supplies as of March 1st totaled 6.01 billion bushels, down roughly 8 percent from a year ago. The agency’s estimate of consumption in the three months ended Feb.29 rose 3.1 percent to a record 3.64 billion bushels.

Wheat inventories as of March 1 fell 16 percent to 1.201 billion bushels.

After the USDA announced farmers would most likely cut plantings in order to seed more corn, soybeans, and other crops... spring wheat futures traded on the Minneapolis Grain Exchange reached the highest price in 10 months.

In order to account for the shortage, farmers are expected to plant 95.9 million acres of corn this spring, 4 percent more than what was planted a year go and the highest since 1937, when 97.2 million acres were planted.

Acreage allocated for growing corn and wheat crops in order to meet increasing demand from Asia and the ethanol industry is partly to blame for the shortage, while bad weather accounts for the rest.

Ethanol companies like Archer Daniels Midland (NYSE: ADM) and food producers like Tyson (NYSE: TSN) and Smithfield Foods (NYSE: SFD) are already seeing an increase in production costs as a result of the shortage.

In South America, dry weather has lead to poor crops causing a 17 percent jump in the first quarter, and the USDA predicts Brazil will be the largest exporter of corn this year. Marking the first year the U.S. has not been on top.

Until next time,

Nate


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