US floods may not exacerbate food inflation

Farmers planted extra corn this year to capitalize on growing demand for ethanol. This move may help offset Midwest flood damage. (Seth Perlman/Associated Press)

DES MOINES - Midwest floods may not contribute as much to food inflation as was feared.

Corn prices fell yesterday after the government surprised traders, reporting farmers tried to cash in on soaring corn demand for ethanol by planting more acres of the crop than the market expected.

That could be good news for shoppers, although food prices still have to contend with rising costs for distribution and for fuel.

Farmers will harvest nearly 9 percent fewer acres of corn this year than last year, in part because of Midwest flooding that has damaged a portion of the crop, the government reported.

But the latest USDA figures also showed that farmers had planted more than a million additional acres of corn than they had expected to plant in March, which may remove some of the inflation potential out of the floods. Corn futures fell after yesterday's report.

The US Department of Agriculture said farmers expect to harvest 78.9 million acres of corn, down 8.7 percent from the 86.5 million harvested last year. The report also indicates farmers planted nearly 7 percent fewer acres of corn than last year - 87.3 million acres, vs. last year's 93.6 million acres.

Grain analyst Dan Basse, president of Chicago-based AgResource Co., an agricultural consulting firm, said high corn prices encouraged farmers to find more land to plant in corn. Even with the anticipated reduction in harvested acres caused by flooding, Basse said a robust harvest could soften corn prices.

"They'll weaken with time, and I don't see an economic reason why new crop corn futures need to be above eight or new crop soybean futures need to be above 16 unless we have a drought," he said.

Corn futures, which were about $6 a bushel in early June and rose to about $7.60 as recently as last week, dropped nearly 30 cents to about $7.25 on the Chicago Board of Trade.

An ethanol industry trade group, Renewable Fuels Association, said the anticipated corn harvest will be enough to satisfy projected needs.

The group said a harvest of around 11.5 billion bushels will meet projected demand and leave about 800 million bushels left over. The USDA said about 4 billion bushels of corn remain in the nation's stockpiles.

Dan Cekander, an analyst for Chicago-based Newedge USA, said grain prices are likely to have less of an impact on food inflation than other factors. Food costs climbed about 4 percent in fiscal 2007, which ended in July, and Cekander said they could climb as high as 6 to 7 percent.