Lower crop reserves raise food costs in US presidential poll

Written by Bloomberg | Washington | Updated: Apr 10 2012, 07:47am hrs
US corn stockpiles are poised to be the smallest in 16 years by August and soybean reserves will be lower than the government expected, potentially accelerating food-price inflation in an election year.

The US department of agriculture may say corn inventories on August 31 will be 37% lower than a year earlier at 715 million bushels (18.2 million metric tonnes), the average of 32 analyst forecasts compiled by Bloomberg show. That compares with a projection of 801 million bushels last month. Soybean stockpiles will be 242 million bushels, down from a March prediction of 275 million, the survey showed.

The government is already predicting food inflation of 2.5% to 3.5% in 2012. While thats down from 3.7% in 2011, it would be higher than gains in as many as five of the past eight years. Drivers are contending with gasoline prices that have jumped 20% this year, American Automobile Association data show. Global food costs rose for the third straight month in March, the United Nations had said on April 5.

Consumers will see additional price gains this year, said Corinne Alexander, an agricultural economist at Purdue University in Lafayette, Indiana. There will be no relief for consumers until later this year if high prices lead to large world crops.

Corn prices averaged $6.405 a bushel on the Chicago Board of Trade in the first quarter, 2.8% more than in the previous three months and the fifth-highest in data going back more than a half century. Soybeans averaged $12.752 a bushel, 8.1% more than in the fourth quarter. The Standard & Poors GSCI Agriculture Index of eight commodities rose 1.8% this year.

US corn reserves relative to usage may fall to the lowest ever this year, Morgan Stanley and Jefferies Bache LLC forecast. The grain, used mostly in livestock feed and to make ethanol, is the biggest US crop by value, followed by soybeans, hay and wheat.

Cattle futures in Chicago reached a record $1.315 a pound on February 22, partly because high corn-feed costs prompted farmers to shrink herds. Retail prices of pork chops and beef were close to all-time highs in February, government data show.

The cost of living in the US rose in February by the most in 10 months as gasoline costs jumped. The consumer-price index climbed 0.4%, after increasing 0.2% the prior months, the labour department said on March 16. The so-called core measure, which excludes more volatile food and energy costs, increased 0.1%.

Food inflation of 2.5% to 3.5% would still be better than in some of the past several years. Prices advanced 4% in 2007 and 5.5% in 2008, before moderating to gains of 1.8% in 2009 and 0.8% in 2010, according to the USDA. The UNs global food index is still about 9% below the record reached in February 2011.