USDA revises corn, soybean crop estimates dramatically lower
The U.S. Department of Agriculture gave its assessment of the historic drought Friday, forecasting national corn production at 10.8 billion bushels, down 13% from 2011 and the lowest production since 2006.
Analysts knew lower projections were coming but "this is a substantial drop. Wow," says Harry Kaiser, head of the Food and Agricultural Economics program at Cornell University in Ithaca, N.Y.
The government report said corn prices, which already have reached record levels above $8 per bushel in the last month, could go to as high as $8.90 per bushel, well above $6.40 per bushel projected in July and $4.80 per bushel projected in April at planting time.
On the Chicago Board of Trade corn futures sold for $8.43 a bushel shortly after the report was issued, as traders already had factored lower production into their numbers.
About 40% of the U.S. corn crop is used to make ethanol, under federal mandate. Another 40% is used as animal feed, both here and abroad. The remaining 20% is eaten in mostly processed foods in the United States such as high-fructose corn syrup and items like corn flakes.
U.S. food prices are predicted to increase between 3% and 4% because of the sky-high corn prices, and will probably go higher with the new, lower corn numbers. But overall high prices don't hit consumers too hard because so little of what we pay at the supermarket is actually for food. The corn in a box of corn flakes is worth about 7 to 8 cents. We pay for processing, transportation.
The USDA has warned that the 2.5% to 3% increase in food prices this year will widen to as much as 5% next year.