Food costs likely to rise as farmers change plans

Consumers and ethanol plants now have a shared worry: Farmers will plant less corn this year than last, according to a government report Monday.

That means tighter supplies and higher prices for everything from corn flakes to ham hocks.

The U.S. Department of Agriculture's annual plantings report, an estimate of the coming year's crop based on farmer surveys, was more widely anticipated than usual on Monday by a nation gripped by food-price inflation and a still-booming ethanol revolution.

Despite high prices for corn, farmers plan to seed 8 percent fewer acres of it because of steep run-ups in the cost of fertilizer, seed and land -- and attractive prices for other crops.

As farmers trade out of corn, they plan about 18 percent more acres for soybeans and 6 percent more acres for wheat, two commodities that have seen record prices in recent months, the report added. Total land use for major commodity crops is expected to grow 6 to 7 percent.

In Minnesota, corn planting will fall from 8.4 million acres to 7.6 million acres as Minnesota farmers follow the national trend and scale back from last year's bumper crop, which consumed the most acreage for corn since 1944, racing to supply a growing ethanol industry.

This year, even more corn will be needed for ethanol plants, raising the prospect that ethanol will use as much as one-quarter of the nation's corn supply, or about 3.2 billion bushels.

Despite the expected cut in corn acreage, analyst Elaine Hub said this year's corn and soybean numbers would remain historically high -- about 4 percent higher than five-year historical averages.

"It's so tempting to compare these to 2007 numbers, but I think last year was a poor comparison," said Hub, an analyst with DTN, a subscription-based news and information service.

Demand for corn remains very high: Corn helped produce 4.9 billion gallons of ethanol last year. And under construction are 77 plants capable of producing an additional 6.2 billion gallons of ethanol annually, according to the Renewable Fuels Association.

If corn goes to $6 or $7 a bushel, as some analysts now forecast, "it won't be too pretty," said Brad Stenzel, manager of Matawan Grain and Feed in Matawan, Minn.

He predicted that some of the older farmer-owned ethanol cooperatives might ride out the higher prices by simply shutting down.

A newer plant that's still paying off construction loans, however, may have no choice but to continue operating, possibly at a steep loss.

"There's a way out of this with fewer acres, and that's just have a bumper crop," said Ed Usset, a grain marketing specialist at the University of Minnesota. "That's a hell of a thing to just bet on."

Elsewhere on Minnesota's farms, wheat acres are expected to climb, along with soybeans. Shrinking slightly will be the state's acres for oats, barley and edible beans.

The state's sugarbeet crop will fall by 11 percent, but not because of farmers chasing more acres for soybeans or wheat, said an analyst. Farmers in the Red River Valley likely will grow more sugarbeets on less land thanks to improved seed varieties, said Mohamed Khan, extension sugarbeet specialist at North Dakota State University.

"It used to be [that] if you had a 20-ton per acre crop, you were happy," he said. "In 2006 we had a 25-ton crop and in 2007 we had a 23-ton-plus crop." American Crystal Sugar, one of three major sugar cooperatives in Minnesota, plans a 15 to 19 percent reduction in land use this year, according to Khan.

Spring wheat traded lower Monday on the Minneapolis Grain Exchange, with wheat for May delivery closing down 60 cents at $11.94 a bushel. Corn for May delivery closed up 6¾ cents to $5.67¼ a bushel on the Chicago Board of Trade. Soybeans fell 70 cents, the daily limit, to close at $11.97¼.

The USDA report was a prediction. The weather, as always, could bring dramatic changes to the harvest, said analyst Joe Victor, vice president of marketing for Allendale Inc., a commodity research firm based in McHenry, Ill.

Ideal weather could bring $3.05-a-bushel corn, Victor said, but a wet spring and summer could bring low yields and a price spike up to $13 a bushel.

"Folks, this game is going to get real dicey," Victor said.

Matt McKinney • 612-673-7329