Thursday 02-10-11

Expect higher food prices as corn reserves lowest in 15 years

ST. LOUIS (AP) — U.S. reserves of corn have hit their lowest level in more than 15 years, reflecting tighter supplies that will lead to higher food prices in 2011. Increasing demand for corn from the ethanol industry is a major reason for the decline.

In this Sept. 11, 2010 file photo, central Illinois farmers harvest their corn crops near Monticello, Ill. U.S. reserves of corn have hit their lowest level in more than 15 years,
The U.S. Department of Agriculture reported Wednesday that the ethanol industry's projected orders this year rose 8.4%, to 13.01 billion bushels, after record-high production in December and January.

That means the United States will have about 675 million bushels of corn left over at the end of year. That's roughly 5% of all corn that will be consumed, the lowest surplus level since 1996.

One bushel of corn equals 25 kilograms, or 55 pounds.

The USDA report, which measures global supply and demand for grains, oilseeds and other crops, said its projections for wheat and soybean stocks remained unchanged at historical low levels for reserves.

Corn prices have already doubled in the last six months, rising from $3.50 a bushel to more than $7 a bushel.

Consumers won't see the broader impact right away. It takes months for higher grain costs to work their way through the food system and show up at the grocery store. The cost of corn and soybeans represents just 10% of the total cost of food, and big processors such as General Mills are hesitant to pass along those costs quickly to consumers.

Still, companies such as Hormel Foods. have already announced price hikes for 2011 to cover the increases. Hormel said prices will rise by about 3% on a variety of products, from Spam to canned soups.

Rising grain costs hit meat producers first. Tyson Foods, the biggest U.S. meat company, says it is aiming to cut $200 million in operational costs to offset higher corn and soybean costs. CEO Donnie Smith calls that the "new normal" price range. Tyson said chicken, beef and pork prices are expect to rise, if only slightly, this year as producers seek to cover costs.

Shares of meat producers like Tyson, Smithfield Foods and Pilgrim's Pride opened lower Wednesday, falling less than 1% in early trading.

http://www.usatoday.com/money/industries/food/2011-02-09-corn-low_N.htm