Crop prices could rise this year because of dwindling supplies of U.S. corn and soybeans, a prospect that raises fears of grain shortages and higher food costs.
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 and by domestic demand for crop-based fuels such as ethanol and biodiesel. Global grain markets are left with a thinner cushion of surplus. The tightening supply could start to raise crop prices, which have 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 collapsed after last fall’s financial crisis, when global demand sank along with the economy, but have been steadily rising this spring. Still, prices haven’t come close to last summer’s all-time highs.
Higher grain prices could hurt already-battered food companies including General Mills Inc. and Tyson Foods Inc., which have had to pay more for ingredients as prices for corn, wheat and soybeans have risen.
Prices at the grocery store could also climb as food producers pass their higher costs on 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 USDA 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.
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 such corn-producing states as Illinois, where farmers have delayed planting.
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 would 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 expected.