USDA Expects Higher Food Prices as it Cuts Corn Crop Outlook

An unseasonably hot summer is expected to damage most of this year’s corn crop in the U.S., which could have food prices up across the board next year.

Though U.S. farmers planed the second-largest crop since World War II, high temperatures stunted growth, and the U.S. Department of Agriculture is now estimated a surplus of 672 million bushels of corn will be left over at the end of next summer, down from last month’s forecast and well below healthy levels.

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Corn prices rose to record highs earlier this year because of limited supplies. On Monday, corn was trading at $7.30 a bushel, nearly twice its price at the end of July 2010. On June 10, corn peaked at $7.87 a bushel. Because corn is an ingredient in everything from livestock feed to cereal to soft drinks, higher corn prices can drive up prices of many different foods. It takes roughly six months for higher corn prices to trickle down to products at the grocery store.

When the harvest begins next month, farmers are expected to have a surplus of 920 million bushels, but that number is expected to further decline next year because of the damaged crops. The 920 million-bushel surplus expected at the end of this summer is roughly a 26-day supply of corn, down slightly from estimates last month. Next fall, the corn surplus could fall to a 19-day supply. A 30-day supply is considered healthy.

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Because rising food prices generally don’t cause people to buy less food, short-term supply disruptions can cause prices to jump exponentially. As a result, consumers cut spending on other things so they can maintain the diets to which they are accustomed. Prices tend to stay high until supply increases or demand finally slackens.