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Corn Supplies Jump, Easing Shortage Worries

Corn supplies are projected to be higher than expected this fall. A bigger crop would ease concerns of a grain shortage and could slow food inflation later this year.

Corn
Corn

The U.S. Department of Agriculture (USDA) said Tuesday that 880 million bushels of corn will be left over when the harvest begins. That's an increase from the previous estimate of 730 million acres.

Higher corn prices this year due to more expensive grain led farmers to plant the second biggest corn crop since World War II. It could ultimately make everything from beef to cereal to soft drinks more expensive at the supermarket. For all of 2011, the USDA predicts food prices will rise 3 percent to 4 percent.

News of the big corn crop brought down global corn prices 20 percent over the last month. A huge harvest in August could ultimately slow food inflation. It typically takes six months for changes in commodity prices to affect retail food prices in the U.S. Analysts say consumers could see some relief at the supermarket by early 2012.

Farmers saw corn futures rise, so they switched their acreage into corn from other crops, such as soybeans. The size of this year's corn crop will be 92.3 million acres, about 9 percent larger than the average annual corn crop over the past decade. The only crop bigger in the past 67 years was planted in 2007.

Farmers chose to plant corn at the expense of this year's soybean crop. They planted only 75.2 million acres of soybeans, about 3 percent less than last year. Farmers have a limited supply of good farmland and usually trade one crop for another on their acreage.

Higher corn prices make soybeans and wheat more expensive as farmers plant less of them.

The price of corn is a driver for food inflation because the crop is an ingredient in feed for poultry and livestock, and a staple in many processed foods. When corn prices rise, food processors and grocers pass along the higher costs to consumers.

A bigger crop doesn't guarantee lower food prices, however. A drought or flood could limit the size of the harvested crop. Many of the acres planted this spring were on marginal land that won't yield much grain. Farmers also planted during wet weather because they knew they could get the crops insured.

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