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Published March 31, 2011, 09:29 AM

Bigger corn crop not likely to ease food inflation

ST. LOUIS — U.S. farmers are expected to boost the size of this year's corn crop, potentially easing global food inflation.

By: Christopher Leonard, Associated Press

ST. LOUIS — The government predicts U.S. farmers will increase this year's corn crop, but it won't likely be enough to stem the rise in food prices.

Farmers intend to plant 92.2 million acres of corn this spring, 5 percent more than last year, the Agriculture Department estimated Thursday. That would be the second-biggest corn crop since 1944, after a record-setting planting in 2007. Yet the additional supply isn't expected to keep up with growing global demand.

Prices of corn and soybeans rose after the report as analysts warned that even with the increase in corn acreage, grain prices won't drop back to their lower levels of six months ago. Prices will likely stay elevated, in part because of rising demand for grain from the U.S. ethanol industry and exports to an expanding Asian middle class.

The government said earlier this year that corn reserves were at their lowest level in 15 years. The low surpluses are leaving markets jittery. It means that relatively slight declines in supply, from droughts and other short-term disruptions, can send prices jumping.

“Stocks are going to remain very tight,” said John Sanow, a grain markets analyst with Telvent DTN in Omaha.

Grain prices are at their highest points since the food crisis of 2008. Worries over a shortage have doubled the price of corn since last summer, from $3.50 to more than $7 a bushel.(One bushel of corn equals 25.4 kilograms or 56 pounds). The high prices are encouraging farmers to plant more corn.

It isn't likely to be enough. The price of corn had fallen this week in anticipation of the crop report, dropping to about $6.60 a bushel. But the price shot up to $6.93 a bushel by late Thursday morning.

Some of the increase in corn acres comes at the expense of this year's soybean crop. Farmers intend to plant 76.6 million acres of soybeans. That's down 1 percent from last year. Soybean prices rose 3 percent to $14.15 a bushel. (1 bushel of soybeans equals 27 kilograms/60 pounds).

It can take months for grain prices to filter through to U.S. groceries. That's because ingredient costs account for just 10 percent of the price of the processed food Americans buy. The USDA predicted earlier this year that overall food prices would rise a little more than 3 percent this year.

Traders fret that farmers will expand the corn crop by planting on acreage previously set aside for land conservation. That land isn't highly productive, so crop yields there could be disappointingly low, KeyBanc Capital Markets Akshay Jagdale said in a report to clients.

If yields look sluggish this summer, and if bad weather affects the Midwest, prices could climb again, Jagdale said.

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