The United States' reserves of corn have hit a 15-year low that will likely lead to higher food prices in 2011, as demand for the crop as an energy source increases.
The price of corn affects most food products. It's used to feed the cattle, hogs and chickens that fill the meat case, and is the main ingredient in some cereals and snacks such as tortilla chips. Turned into corn syrup, it sweetens most soft drinks.
The U.S. Department of Agriculture reported Wednesday that the ethanol industry's projected orders this year rose 8.4 per cent, to 13.01 billion bushels, after record-high production in December and January.
That means the United States will have about 675 million bushels of corn left over at the end of year. That's roughly five per cent of all corn that will be consumed, the lowest surplus level since 1996.
The USDA report, which measures global supply and demand for grains, oilseeds and other crops, said its projections for wheat and soybean stocks remained unchanged at historical low levels for reserves.
The decline in reserves caused corn futures to surge, with prices rising 2.4 per cent to $6.9025 during morning trading. Corn prices have already doubled in the last six months, rising from $3.50 a bushel to nearly $7 a bushel. Analysts expect the price increases to continue in coming months.
"I think we have a chance to test the all-time high" price of $7.65 a bushel, said Telvent DTN analyst John Sanow. The tight level of reserves leaves little margin for error if there are production problems this year, which could send prices higher quickly, he said.
Major food makers and some restaurants have already said they'll be raising prices this year because they're paying more for corn, wheat, sugar, coffee and chocolate, all of which are at historically high prices. Weather has affected many crops this year.
A severe drought in China, the world's largest wheat grower, could force prices even higher. The U.N.'s food agency has warned that the drought is driving up the country's wheat prices, and now the focus is on whether China will buy more from the global market, where prices have already risen about 35 per cent since mid-November.
Some food makers already began selectively raising prices within the past few quarters.
