CHICAGO - The smallest corn inventories in 37 years are a sign farmers around the globe are failing to produce enough grain to meet rising consumption, even as planting expands and food prices surge.
Growers from Canada to Russia boosted annual output of wheat, rice and feed grain by 16 percent since 2000, not enough to keep up with the 20 percent gain in demand, Department of Agriculture data shows. While a Bloomberg survey of 25 analysts shows the agency on Thursday may forecast a 3.5 percent increase in corn planting, the government says world stockpiles will equal 15 percent of use, the lowest since 1974.
Global inventories for all grain will drop 13 percent before the next harvest, the USDA estimates. That's the first decline since 2007, when surging food prices sparked more than 60 riots from Haiti to Egypt. Increasing demand is causing isolated food shortages and accelerating inflation in developing countries even as it boosts farmers' incomes and shifts planting strategies.
"We need to grow a huge crop this year to meet global food needs," said Paul Jeschke, 58, who farms 3,600 acres near Mazon, Ill., and plans to boost corn planting by 50 percent because the crop is as much as $200 an acre more profitable than soybeans at current prices. "The increased demand for meat and dairy is driving demand for corn and soybeans."
Rising incomes in developing countries are boosting food prices as people eat more meat and dairy products from crop-fed livestock. U.S. subsidies are fueling demand for ethanol made from grain, while droughts and floods in 2010 damaged global harvests.
Grain futures rallied this month to the highest since 2008 on the Chicago Board of Trade. Corn surged 95 percent in the past year to $7.2025 a bushel as of Friday, wheat jumped 71 percent to $8.5575 a bushel, and soybeans advanced 44 percent to $13.81 a bushel. Rice gained 11 percent to $15.075 per 100 pounds.
Corn probably will reach a record $8 by 2012, and may touch $10 if the U.S. crop is disrupted, said Peter Sorrentino, who helps manage $14.4 billion at Huntington Asset Advisors. Goldman Sachs said on Feb. 10 that soybeans will rise the most, forecasting a 16 percent increase to $16 in the next three months. Wheat futures for delivery in December, after the U.S. harvest, trade at a 72.5-cent premium to the May contract, the widest spread since 2009.
"People have to eat, and we have a backdrop of falling stockpiles," Sorrentino said by telephone from Cincinnati. "Even if we have a great harvest, we'll just be getting back to levels people can be comfortable with in terms of stockpiles. The trend is going to be for increasing prices for years to come."
The rally is encouraging farmers to plant more this year. The USDA, at its annual Agricultural Outlook Forum on Thursday in Arlington, Va., probably will forecast an increase in U.S. corn planting to 91.281 million acres from 88.192 million, according to the average estimate in the Bloomberg News survey. Soybean planting may be little changed at 77.274 million acres, the survey showed.
Including winter varieties already in the ground and spring crops that will be sown before June, U.S. wheat farmers will plant a total of 57.206 million acres, up 8.8 percent from a year earlier, according to the Bloomberg survey. Even with increased acres, output may drop because growers will abandon more of the crop this year after dry weather hurt yields, according to Lanworth Inc., a crop forecaster in Chicago.
The global grain harvest was 2.179 billion metric tons during the past season, dropping 2.4 percent from 2010 and down for a second straight year, according to USDA data. While that's up from 1.874 billion in 2000, it's less than the department's 2.235 billion-ton estimate of world consumption for this year.
Inventories before the Northern Hemisphere harvests will fall to 425.72 million tons from 487.88 million a year earlier and 27 percent less than what was on hand in 2000, the USDA said.
Tighter supplies helped boost global food costs by 25 percent last year, reaching the highest ever last month, according to the United Nations. The increase has pushed 44 million more people into extreme poverty since June, and the situation may worsen unless weather
Governments are planning investments to revive crop supplies. China will spend $1.96 billion to bolster grain production and fight drought, Premier Wen Jiabao told China Central Television on Feb. 10. Bolivia may tap its record $10 billion central bank reserves to help boost agricultural output and stockpile food staples, Finance Minister Luis Arce said.
"Corn supplies are going to be extremely tight this year," said Loyd Brown, the president of Hertz Farm Management Inc. in Nevada, Iowa, who helps manage about 500,000 acres in nine Midwest states. "When you consider that U.S. farmers harvested the third-largest crop last year, that means this is a demand market. You have to be bullish on agriculture. Global economic growth is driving demand for improved diets, and rising populations continue to boost exports."
- (optional add end) Overseas purchases of agricultural products from the United States, the largest exporter of corn, soybeans, wheat and cotton, probably jumped 18 percent to a record $115.81 billion in 2010, the government said last week. China became the largest market for U.S. farm goods for the first time, as shipments increased by 34 percent to $17.5 billion, the data show.
China, the world's most populous nation, has been leading the demand. The number of people in the Asian country grew 5.3 percent in the past decade, Census Bureau data show. During that period, as the economy more than quadrupled, urban incomes tripled while rural incomes more than doubled, according to the government.
The crop rally has been a boon to producers. On Feb. 14, the USDA forecast net-farm income in the U.S. will surge 20 percent this year to a record $94.7 billion, allowing President Barack Obama to propose a 14 percent reduction in agricultural subsidies in his 2012 budget proposal.
While U.S. farmers want to plant more to take advantage of higher prices, many are already using the most-productive land, and the weather over the next eight months will remain a major influence on the size of any crop, said Dan Basse, the president of AgResource Co., a farm researcher in Chicago.
"We cannot rebuild the inventory cushion in one year," said Basse, who has been studying agricultural markets since 1979. "We have reached an acreage wall where the U.S. can no longer be the world's pillar of exports for corn, soybeans and wheat."
- With assistance from Rudy Ruitenberg in Paris, Tony Dreibus in London, Pratik Parija in New Delhi and Chanyaporn Chanjaroen in Singapore.