U.S. corn planting will expand to cover the second-largest area since World War II this year and still fail to meet demand for feed and ethanol, driving prices to their highest in at least 34 years.
Sowing will expand by 4 percent to about 91.75 million acres, the most since 2007 and the second-highest since 1944, according to a Bloomberg survey of 32 analysts. Corn will rise 5.7 percent to average $7.15 a bushel in the third quarter, the most since at least 1977, Abah Ofon and Koun-Ken Lee, analysts at Standard Chartered Bank in Singapore, wrote in a report.
A United Nations index that tracks the cost of 55 foods rose to a record in February, with higher prices contributing to riots in the Middle East and northern Africa that toppled leaders in Egypt and Tunisia. That’s driving up inflation and spurring central banks to consider higher interest rates that may slow global growth.
“We will have inadequate acreage, which without spectacularly favorable weather, will usher in a significant food shortage” in some parts of the world, said Doug Jackson, a West Des Moines, Iowa-based vice president at INTL FCStone Inc. “Demand is outrunning normal production expansion, led by biofuel policy,” said Jackson, who has been a grain analyst since 1974.
Animal-feed use is being driven by record prices for cattle and hogs, and biofuel demand is forecast by the U.S. Department of Agriculture to increase by more than 8 percent. The agency releases a forecast on planting intentions on March 31.
In the year ending Aug. 31, about 40 percent of the corn crop will be used to produce ethanol, the USDA predicts. Refiners get a tax credit of 45 cents for every gallon of ethanol blended into gasoline. Since Oct. 1, the price of the fuel has jumped 45 percent on the New York Mercantile Exchange. Corn jumped 89 percent in the past 12 months and traded at $6.7675 as of 3:40 a.m. on the Chicago Board of Trade.
The price of wholesale beef in the U.S. rose to a record last week, while the number of cattle in feedlots climbed 5 percent on March 1 from a year earlier. Wholesale pork jumped 33 percent in the past 12 months, and producers expanded the breeding herd by 0.5 percent on March 1 from a year earlier.
The Standard & Poor’s GSCI Agriculture Index of eight prices has climbed 62 percent in the past 12 months on a total-return basis. Last year, flooding in Canada, China and Australia and drought in Russia and Europe hurt crops from cotton to wheat.
World grain markets face “continued tightness” as record production probably won’t be sufficient to make up for rising demand, the International Grains Council said on March 24.
U.S. soybean acres may fall 0.8 percent to 76.786 million, a three-year low, according to the Bloomberg survey. Planting of spring and winter wheat may rise 6.8 percent to 57.239 million acres, and the area sown with cotton may increase 20 percent after prices more than doubled in the past year.
Surging corn prices will boost returns on high-productivity farmland in central Illinois by $189 an acre over soybeans, Gary Schnitkey, an agricultural economist at the University of Illinois in Urbana, said in a report. The average premium was $48 from 2004 through 2010.
Soybeans for May delivery rose 0.6 percent to $13.5625 a bushel today in Chicago trading. The oilseed has climbed 40 percent in the past 12 months.
The USDA’s acreage projections are based on a survey of farmer intentions in early March. In the past 20 years, the tally has overestimated the corn acreage 60 percent of the time and underestimated soybeans in 13 years, USDA data show.
Wet spring weather can delay corn planting. Farmers need warm, dry weather in April to make sure the crop is planted before May 10 in the Midwest to avoid yield losses from heat in July and August and possible frost damage in September.
Some farmers may shift to soybeans, rather than risk a late-developing corn crop. The outlook for prices will also determine acreage, said Jerry Gidel, a market analyst at North American Risk Management Services Inc. in Chicago.
“The idea of diversification also remains a strong factor with producers who like to separate their marketing risk between crops because of weather and world economic issues,” Gidel said. “Many times, producers don’t always make every farming decision based upon the highest economic returns that might be available at the time of planting.”
In a separate report on March 31, the government will say U.S. corn inventories on March 1 probably fell to the lowest for the date since 2007, while soybean supplies rose from a year earlier, according to a Bloomberg survey of as many as 22 analysts. Wheat inventories probably climbed to the highest since 2000, according to the survey.
Corn is the biggest U.S. crop, with a 2010 value of $66.7 billion, followed by soybeans at $38.9 billion, government figures show. Wheat was fourth at $13 billion, behind hay.