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— Crop prices could rise this year because of dwindling supplies of U.S. corn and soybeans, raising fears of grain shortages and higher food costs for consumers.
Reserve grain supplies from last year's harvest are at low levels — with soybeans at their shallowest level in more than 25 years — the Agriculture Department said Wednesday. And this year's crop isn't expected to replenish grain bins.
The reserve stocks have been depleted by U.S. grain exports, along with domestic demand for crop-based fuels like ethanol and biodiesel. Global grain markets have been left with a thinner cushion of surplus. The tightening supply could start to raise crop prices, which had been kept down by the global recession.
"The dynamics for higher food prices are already in place, but they are being masked by problems in the larger economy," said Greg Wagner, senior commodity analyst with Chicago-based AgResource Co.
Crop prices have been steadily rising this spring after collapsing after last fall's financial crisis, when global demand sank along with the economy. Still, prices haven't come close to last summer's all-time highs.
Higher grain prices could hurt already battered food companies like General Mills Inc. and Tyson Foods Inc. They've had to pay more for ingredients as prices for corn, wheat and soybeans have risen. Prices at the grocery store could climb, too, as food producers pass on their higher costs to consumers.
Both companies have said they expect crop prices to go higher this year, though below last summer's peak.
There are 110 million bushels of soybean supplies left from last year's U.S. harvest, down 20 million from last month, according to the Agriculture's World Agricultural Supply and Demand Estimates.
That's the lowest level of surplus soybeans for a June since 1983, Wagner said. And the demand for grains is much higher today. In 1983, the U.S. market required about 1.9 billion bushels of soybeans to meet demand. Today it needs 3.7 billion, he said.
"It just shows you how extremely tight this is," Wagner said.
Because most of the soybean harvest is used to make animal feed, its prices affect meat producers. Soybeans are also used to make many processed-food goods sold by Kraft Foods Inc., ConAgra Foods Inc. and others.
Soybean supplies were drawn down in part because of a drought in Argentina, the third-largest soybean exporter after the United States and Brazil, said Joe Victor of Allendale Inc., a McHenry, Ill.-based agricultural trading and research firm.
Countries like China also have been relying on U.S. grain exports even as U.S. soybean farmers are supplying American biodiesel refineries. That helps explain why soybean surpluses are down sharply from 2006, when there were 574 million bushels of surplus soybeans heading into the spring harvest, compared with the current 110 million bushels, Victor said.
Corn supplies are also tightening. This year's harvest is expected to yield 11.9 billion bushels, down 155 million from last month's projection. The decline is due to soggy weather in corn-producing states like Illinois, where farmers have delayed planting. It's prompted the USDA to revise downward its yield expectations by 2 bushels an acre, to 153.4 bushels an acre.
Total use of the corn crop is projected to be 12.5 billion bushels, which would outstrip this year's supply by 525 million bushels. That means the corn surplus will be drawn down heavily, according to the USDA report, leaving about 1.1 billion bushels at the end of the year. That's 510 million bushels fewer than USDA analysts had originally expected.
The report sent soybean futures for July delivery up 2.5 cents to $12.46 a bushel on the Chicago Board of Trade, while corn for July delivery fell 8.25 cents to $4.36 a bushel. The market didn't react strongly to the report because the figures were in line with expectations.
(This version CORRECTS Wednesday's market price for corn and soybeans)
