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Corn, Soybean, Wheat Prices Surge as U.S. Cuts Supply Outlook

Corn, Soybean, Wheat Prices Surge
Corn and soybeans jumped to the highest prices since July 2008 and wheat surged after the government cut its forecasts of U.S. inventories, signaling tighter food supplies as demand increases and adverse weather reduces harvests. Photographer: Paulo Fridman/Bloomberg

Corn and soybeans jumped to the highest prices since July 2008 and wheat rose after the government cut forecasts for U.S. inventories, signaling tighter food supply as demand increases and adverse weather hurts crops.

Production of corn in the U.S., the world’s largest grain exporter, dropped 4.9 percent last year and will leave supply before the 2011 harvest at the lowest in 15 years, the Department of Agriculture said today. The agency also cut its estimate of the soybean crop by 1.4 percent and said domestic wheat inventories will be 16 percent less than a year earlier.

Corn, used mostly in livestock feed, has surged 61 percent in the past year, while soybeans and wheat gained more than 40 percent. Wholesale world food prices tracked by the United Nations rose 25 percent last year to a record, fueled partly by rallies in grains and oilseeds. Exports of U.S. crops are headed to the highest ever, boosting farmer income and profit for agriculture companies including Cargill Inc. and Deere & Co.

“There’s no room for error anymore” on farms around the world, said Dan Basse, the president of AgResouce Co., a commodity consultant in Chicago. “With any weather issues, we’re going to make new all-time highs in corn and soybeans, and to a lesser degree, wheat futures.”

Drought ruined wheat fields in Russia last year and too much rain diminished supplies of the grain from Canada. Adverse weather led to a drop in 2010 corn production in the U.S. and a smaller harvest of soybeans than expected, government data show.

Planting Pressure

“The pressure is acute, in terms of planting fence row to fence row, and really getting the message out to farmers that they need to be planting up their front yards,” Basse said today on a conference call with reporters and analysts.

Corn futures for March delivery rose 24 cents, or 4 percent, to close at $6.31 a bushel at 1:15 p.m. on the Chicago Board of Trade, the biggest gain since Dec. 1. Earlier, the price jumped by the exchange limit of 30 cents to $6.37, the highest since July 2008.

Soybean futures for March delivery soared 58 cents, or 4.3 percent, to $14.15 a bushel, the largest advance since Oct. 8. Earlier, the oilseed surged by the exchange limit of 70 cents to $14.27, a 29-month high.

Wheat futures for March delivery jumped 11 cents, or 1.4 percent, to $7.705 a bushel, ending a four-session slide.

Commodities have climbed in the past year, including cotton and sugar prices that have almost doubled since the end of June. Today, cattle futures climbed to a record, and coffee rose to a 13-year high. The Thomson Reuters/Jefferies CRB Index of 19 raw materials extended an advance to the highest level since October 2008.

Meat Processor ‘Headwind’

Rising crop prices will increase global demand for fertilizer from Mosaic Co. and seeds from Monsanto Co. Reduced supplies of corn will boost expenses for meat companies and squeeze profit margins for makers of ethanol including Valero Energy Corp.

Shares of Tyson Foods Inc., the largest U.S. chicken processor, and Sanderson Farms Inc. fell. Rising livestock-feed prices “will be a headwind for U.S. protein producers,” said Farha Aslam, an analyst at Stephens Inc. in New York.

U.S. farmers collected 12.447 billion bushels of corn last year, less than last year’s record 13.092 billion, the USDA said today. In August, the government said production would rise to 13.365 billion. Flooding in June and hot, dry weather in August cut Midwest yields.

A record 4.9 billion bushels will be used to make ethanol in the year that began Sept. 1, up from 4.568 billion in the previous year, the USDA said. Global corn inventories before the 2011 harvest will fall to 127 million tons, the lowest in four years, the agency said.

‘Demand Rationing’

“This supply-side reduction adds further stress to an already tight balance sheet and hastens the need for significant demand rationing,” Lewis Hagedorn, a commodity specialist at JPMorgan & Chase Co. said in a report. “The USDA’s current total-demand forecast is conservative when set against most end-user economics and thus implies even lower ending stocks.”

Soybean production in the U.S. fell to 3.329 billion bushels from 3.375 forecast in December and a record 3.359 billion harvested in 2009, the USDA said. U.S. supplies before this year’s harvest are projected to slip to 140 million bushels from 165 million estimated last month and 151 million last year.

“The smaller soybean crop was the surprise in today’s report and significantly tightens the U.S. supply situation,” said Mark Schultz, the chief analyst at Northstar Commodity Investment Co. in Minneapolis.

Wheat Acres

U.S. farmers sowed 40.99 million acres of winter wheat, rising 9.8 percent from a year earlier when the planted area was the smallest since 1913, government data showed. Seeding of the soft-red variety in the Midwest surged 47 percent to 7.76 million acres, more than analysts in a Bloomberg News survey expected.

Many of those Midwest acres will be replanted with soybeans after the winter-wheat harvest, which usually begins in June, said Jason Britt, the president of Central States Commodities Inc., a brokerage in Kansas City, Missouri.

“High prices are the best fertilizer you can have,” Britt said. “That goes for wheat, corn and soybeans. You’ll see more double cropping. Guys will go full-bore on that.”

The U.S. may need to plant an additional 11 million acres of cropland this spring to meet rising global demand for food and fuel, Basse of AgResource said.

“I can’t remember a recent time that all the crops, including cotton, have been in for such an acreage battle,” Britt of Central States Commodities said. “I’ve talked to guys who say they’re tilling up pastureland that hasn’t been in production in years. High prices will do their job at bringing out extra acreage.”

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