Crop report is upbeat. U.S. corn and wheat harvests will be better than expected, according to a USDA report issued Tuesday. Increased supplies are good news for foodmakers.
No need to anyone to tight the belts!!
For many farmers and food producers, the deluge that swept across Iowa farm fields just two months ago has faded from memory like dust washed away by a hard summer rain.
Indeed, thanks to near-ideal weather conditions in the Midwest, farmers are on pace to produce the second-largest corn crop and fourth-largest soybean crop in history, according to a government report released Tuesday.
The news sent a collective sigh of relief across much of the nation's food industry. The disaster scenario predicted by many -- soaring grain prices, bankrupt livestock producers and skyrocketing grocery prices -- has been averted.
While consumers still will see higher prices for everything from bread and cereal to eggs and turkey, the pain at the checkout counter won't be nearly as bad as previously thought, according to economists and agricultural analysts.
"We're still going to see food price inflation, but it could have been much, much worse had we not had the almost perfect weather since the middle of June," said Tom Elam, an economist with Farm Econ, an agricultural consulting firm based in Indianapolis.
The August crop report is the most anticipated of the year because it is the first based on actual interviews with farmers and visits by USDA officials to farm fields. "The first few [crop reports] of the year are guesses," said Martin Farrell, an independent commodities trader in Minneapolis. "This one gives you the first solid idea of what the crop really looks like."
This year's view from the fields: The corn crop will total 12.288 billion bushels, up from 11.715 billion projected a month ago and second only to last year's record 13.1 billion-bushel harvest, the U.S. Department of Agriculture said. Corn yields improved 4.4 percent from July estimates, to 155 bushels per acre.
The strong numbers gave Wayne Kostroski, co-owner of Franklin Street Bakery in Minneapolis, hope that wheat prices may finally stabilize, if not fall a bit, in coming weeks. Kostroski's bakery supplies hamburger buns, rolls, hoagies and other baked breads to restaurants in 20 states. Wheat represents more than 30 percent of his ingredient costs.
Like many food producers, Franklin Street hedges against commodity price fluctuations by purchasing wheat months in advance. By doing so, the company managed to avoid buying wheat when future prices peaked in June, at the height of the speculative fever in the grain markets. The price of hard spring wheat hit an all-time high of $25 a bushel in February on the Minneapolis Grain Exchange, and has since plunged to $8.91 a bushel.
Even so, elevated wheat and oil prices have forced Kostroski to cut operating costs and to let some vacant job positions go unfilled, he said. "Fortunately, the worst appears to be over," Kostroski said. "Now, we have the double benefit of not paying higher prices for flour and having a better, more efficient operation in place."
But consumers likely will see little relief.
Though prices for grains have fallen dramatically since June, food and livestock producers are still paying roughly twice as much for corn as they did before the commodities-price rally began two years ago. And these prices have not fully filtered through the nation's food system, said Mitch Corwin, a senior analyst at Morningstar in Chicago. Many supermarket and restaurant chains buy items like eggs, poultry and other staples on long-term contracts, which means that much of the price increases of the past 12 months won't appear on grocery and restaurant bills until next year, he said.
"Companies are rolling off their hedges," he said. "Even if corn is cheaper today than it has been recently, it's still very expensive by historic standards. ... You can't make an easy argument that, because corn is down $3, then food prices are coming down."
Pricier meat on its way?
Indeed, some livestock producers are predicting a big increase in meat prices later in the year, to offset the impact of higher fuel and grain costs.
Barry Hilgendorf, chief executive officer of Preferred Capital Management, a hog-management company in Fairmont, Minn., estimates that the market price for hogs is up more than 60 percent -- from 50 cents a pound in March to 80 to 85 cents a pound. That's good news for hog producers struggling with high corn and soybean costs; but bad news for companies like Hormel Foods, maker of Spam and other prepared foods, which last week warned of disappointing earnings growth.
Eventually, companies like Hormel will have to pass higher costs on to consumers, Hilgendorf said. Prices for other staples, such as eggs and milk, already have increased markedly since spring. The consumer price index for food rose at a seasonally adjusted annualized rate of 6.8 percent during the first six months of 2008, the highest rate in 18 years, according to the Bureau of Labor Statistics.
"The retail price for the consumer hasn't gone up as much as it's going to," Hilgendorf said.
And grain prices could spike again, warned Elam, the economist. He noted that this year's crops are particularly vulnerable to frost damage because wet weather delayed planting by several weeks. An early frost could severely cut corn and soybean yields in the Midwest, Elam said.
"Development is way behind where it should be," Elam said. "Even a normal frost could cause some damage, and an early frost would be disastrous."
Chris Serres • 612-673-4308 |
