Will lower grain supplies affect food prices?

Posted Apr 1st 2009 5:20PM by Connie Madon
Filed under: Forecasts, Economic Data, Commodities, Agriculture

In the commodity markets one of the most closely watched reports is the US Department of Agriculture (USDA) estimates of crop plantings for the 2009-2010 season. By all standards the report was bullish. We will see a drop in plantings of 2.8% to about 246 million acres. Farmers cited the high cost of fertilizer and lower prices as the reasons for the drop in plantings, especially for corn which requires more fertilizer per acre than other crops. Some of the bullishness was tempered by a slowing of demand due to the economic crisis.

The USDA said that farmers would sow 84.99 million acres of corn, down 1.2% from last year. Soybean acreage rose to 76.02 million acres, up .4%. The increase, however, was far less than expected. Wheat acreage will drop to 58.63 million acres, down 7.1%, while cotton will fall to 8.81 million acres down 6.9% and the lowest level in 26 years.

How did traders react? You guessed it. There was a strong rally with the May corn contract up 18.4 cents per bushel to $4.046 per bushel. Each penny equals $50.00 or $920.00. May soybeans were up 47.4 cents to $9.52 per bushel ($2370.00) and May wheat was up 20.2 cents to $5.326 per bushel ($1010.00)

One of main problems that we need to follow going forward is will food prices also rise this year due to the reduced supply of grains?

Do you believe that we will see higher food prices this year?.

Tags: USDA crop report, UsdaCropReport