Grains, Soybeans Surge as U.S. Crop Outlook Signals Increasing Food Costs

Corn rose the most allowed by the Chicago Board of Trade as concerns mounted that food costs will climb after the latest U.S. government forecasts on supplies and acreage. Soybeans and wheat also jumped.

U.S. corn stockpiles at the beginning of March dropped to 6.52 billion bushels, the lowest for the date since 2007, the Department of Agriculture said today. Last month, the prices of corn, soybeans, wheat and rice climbed to the highest since 2008, when surging food costs spurred riots from Haiti to Egypt. Today, cattle rose to a record for a second straight day, and cotton surged.

“What’s unique about 2011, unlike 2008, is that corn and soybeans are equally tight, cotton is tight, and wheat isn’t comfortable either,” said Hussein Allidina, the head of commodity research at Morgan Stanley in New York. “The takeaway is that prices are not high enough to ration demand.”

Global food costs climbed to a record last month, a United Nations index showed. High food prices and corruption have spurred unrest in northern Africa and the Middle East this year, ousting leaders in Tunisia and Egypt. The U.S. is the leading exporter of corn, soybeans and wheat.

U.S. farm acreage currently set aside for conservation may have to be pulled into production if corn inventories become too tight to meet food needs, Frank Lucas, the House Agriculture Committee chairman, said today an interview in Washington. The Conservation Reserve Program will pay growers to idle 31.2 million acres of land this year, USDA data show.

Corn futures for May delivery rose by the exchange limit of 30 cents, or 4.5 percent, to close at $6.9325 bushel at 1:15 p.m. in Chicago. The grain has doubled in the past 12 months as global production trailed gains in demand for livestock feed and biofuels.

Soybeans, Wheat

Soybean futures for May delivery jumped 38.25 cents, or 2.8 percent, to $14.1025 a bushel. The USDA said inventories fell to the lowest since 2003. The price has gained 50 percent in the past year on record demand for U.S. supplies from China.

Wheat futures for May delivery rose 36 cents, or 5 percent, to $7.6325 a bushel. The price has climbed 64 percent in the past year as drought spurred Russia to ban exports, while floods eroded crops in Canada and Australia.

Exports of agricultural products from the U.S. jumped 18 percent to a record $115.81 billion in 2010, the government said earlier this month. China became the leading market for U.S. farm goods for the first time as shipments increased 34 percent to $17.5 billion.

China, the biggest buyer of soybeans, became a net importer of corn last year for the first time since 1996.

Potash, Farm Equipment

The USDA on Feb. 14 forecast that farm income will increase 20 percent this year to a record $94.7 billion. Today, the shares of fertilizer makers CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan Inc. rose.

Deere & Co. (DE), Agco Corp. and CNH Global NV advanced as increased acreage and rising crop prices may boost demand for farm equipment such as tractors and combines, said Kelly Wiesbrock, a portfolio manager for Harvest Capital Strategies LLC in San Francisco.

“I can’t see this year being anything but a record year for farm income,” said James Farrell, the chief executive officer of Omaha, Nebraska-based Farmers National Co., which manages more than 2.4 million acres on 5,000 farms in 24 states. “This is a demand-driven market. I don’t see anything that will result in a huge downturn in grain prices this year.”

U.S. corn acreage this year will be the second-largest since 1944, the government said today. Soybean acres were forecast to drop, while wheat will climb. The USDA issued its first 2011 projections following a survey of 85,000 farmers in early March.

‘Perfect’ Weather Needed

The increase in corn won’t be enough to rebuild inventories before this year’s harvest, said Mark Schultz, the chief analyst at Northstar Commodity Investment Co. in Minneapolis.

“We will need perfect weather this year just to maintain current tight reserves next year,” Schultz said.

Cotton acreage this year will increase 15 percent, less than analysts forecast. The price has more than doubled in the past year, reaching a record $2.197 a pound on March 7. Today, the fiber on ICE Futures U.S. in New York jumped by the limit of 7 cents before closing at $2.0023, up 6.56 cents, or 3.4 percent.

‘Complete Surprise’

“The U.S. numbers are a complete surprise,” said Andy Ryan, a senior risk-management consultant at FCStone Fibers & Textiles in Nashville, Tennessee. “This is very bullish for the cotton prices.”

Cattle futures surged to a record for the second straight day as demand for U.S. beef rose in Japan amid concern that radiation from a crippled nuclear plant will curb food supplies. The price reached $1.21 a pound on the Chicago Mercantile Exchange.

Corn, the main ingredient in livestock feed, is the biggest U.S. crop, valued at $66.7 billion in 2010, followed by soybeans at $38.9 billion, government figures show. Wheat is the fourth- largest, behind hay, at $13 billion.

“The healthiest thing that can happen now is for prices to rise and slow demand,” said Sal Gilbertie, the president of Teucrium Trading LLC, which in June launched an exchange-traded product linked to corn futures. “We will deplete reserves before the end of the summer,” because meat and ethanol makers already have purchased supplies, he said.

In the first quarter, corn gained 10 percent, soybeans rose 0.5 percent and wheat declined 3.9 percent.

To contact the reporters on this story: Whitney McFerron in Washington at wmcferron1@bloomberg.net; Jeff Wilson in Chicago at Jwilson29@bloomberg.net

To contact the editor responsible for this story: Patrick McKiernan at pmckiernan@bloomberg.net

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