Increase in grain prices tough on farms

Published 6:30 am Monday, October 11, 2010

By Mark Steil

Minnesota Public Radio News

Worthington — Grain prices moved sharply higher today, and that could have far-reaching effects. The jump came after the U.S. Department of Agriculture slashed its corn crop estimate.

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The news could easily add a billion dollars or more to Minnesota’s farm income, but also could hurt livestock producers and push food prices higher.

Corn, soybean and wheat prices all went up the daily maximum after the U.S.D.A. delivered its forecast, which caught many by surprise. The agriculture department’s estimated soybean production fell 2 percent, compared to last month’s prediction. The corn yield fell four percent.

The harvest is still likely to be huge, but the reduction means there will be a smaller supply of grain than expected. Leading up to the report, there had been speculation in the grain trade that the nation’s corn crop would be much smaller than previously estimated but the decline was greater than expected.

“It was the largest decline from month to month in U.S.D.A. History,” said Jason Ward, a grain market analyst Northstar Commodity in Minneapolis.

Excessive rain and heat over much of the Midwest during the summer reduced the size of the harvest. In reaction to the prospects of lower supplies, grain prices moved up about 7 percent.

Ward said prices could rise another 20 percent or so in the days ahead. That will boost revenue for Minnesota corn and soybeans farmers, whose crops bring in $7.5 billion a year.

But higher prices could hurt farmers who use corn as feed for hogs, cattle, turkeys or dairy cows. Combined, they’re a $4.4 billion industry.

Mark Greenwood vice president of agri-business capital at AgStar Financial Services in Mankato, said his clients reacted immediately to the jump in corn prices.

“My phone has rung off the hook,” said Greenwood, who works with hog farmers. “I think everybody’s in a little bit of state of shock.”

Corn feed is a major expense for those hog farmers. Right now hog production is profitable, after a deep and painful slump resulting from the last spike in corn prices two years ago. Tough times could return if corn prices continue to rise, boosting the cost of raising the animals.

Hog farmers got a break though — at least for today. Along with the jump in grain prices, the price of hogs also moved higher.

The rising farm commodity markets could eventually affect food prices. Over the past year consumer food costs have risen only a percent or so. The federal government predicts a two or three percent increase for next year. It could be more if grain prices continue upwards.

U.S.D.A. economist Ephraim Leibtag says food prices have increased about one percent the past year. He said the increase next year will be two or three percent.

“Part of that increase projected for 2011 is based on the higher commodity prices and ingredient prices that we’ve seen the last two or three months,” Leibtag said. “And certainly if prices were to rise more in the commodity markets that would have upward pressure on our inflation forecast as well.”