Futures prices for those important crops jumped on Thursday, and commodities experts said that would lead to higher prices for manufacturers and consumers.
“The message, based on today’s report, is these higher costs should not be expected to abate any time soon,” said Bill G. Lapp, president of Advanced Economic Solutions, a commodity consulting firm that works with restaurant companies and food manufacturers. “It implies higher cost forthcoming and subsequent margin pressure, and at some point the need to increase prices at the retail level or on the menus.”
The Agriculture Department’s production and supply and demand reports, including information from a survey of farmers and visits to fields, predicted a national average corn yield of 153 bushels an acre, down from nearly 159 bushels in the government’s previous forecast. The department also predicted a small drop in the number of acres of corn that would be harvested this fall.
Hot temperatures and below average rainfall will lower yields, the report said. The dry, hot weather increases stress on the corn plant and keeps it from channeling an optimal amount of energy into the formation of kernels, according to Joel C. Widenor, a meteorologist with the Commodity Weather Group, an agricultural consulting firm.
Mr. Widenor said July was the hottest in the Corn Belt states since 1955. It was the fourth-hottest July in the prime corn-growing region in the last 117 years, he said.
The irony in the new forecast was that it still called for a total corn harvest near record levels. Farmers responded to high price expectations this spring by greatly increasing corn acreage, but an extremely large crop was needed to make up for depleted stockpiles which have been reduced by high demand for corn for animal feed and ethanol production. The coming crop will not be big enough to do that, so corn prices will stay high, pushing up prices for other grains, like wheat, as well.
The Agriculture Department’s reports also lowered the forecast for soybean yield and the total soybean harvest.
“The extreme blowtorch of heat this summer took our yield down,” said Don Roose, president of U.S. Commodities, an Iowa commodities broker and consulting firm. “The wet weather we had early took our harvested acres down. Between the two of them we’re in a situation where now we have to ration supplies.”
December corn futures on the Chicago Board of Trade opened by jumping 30 cents, the maximum daily increase allowed, to $7.18 a bushel. Trading ended the day at $7.14. Soybean futures for the November contract opened at $13.53 a bushel, an increase of $0.52. The contract closed at $13.32. Wheat prices also rose, with the September futures contract on the Kansas City Board of Trade closing at $8.08 a bushel, a gain of $0.23.
“The markets over the past couple of weeks have been trying to figure out which is dropping faster, supply or demand,” said Chad E. Hart, an assistant professor of economics at Iowa State University. He said the U.S.D.A. reports, including the World Agricultural Supply and Demand Estimates known as Wasde, provided an answer: “What the Wasde report said is, supply.”
High commodity prices will translate into higher meat prices because the cost of feeding cattle, pigs and poultry with grain will go up, forcing producers to raise fewer animals.
And pasta prices will be pushed up because the crop of durum wheat, the variety used to make pasta, is forecast to be almost half as big as last year’s, because of flooding in North Dakota.
The average retail pasta price is currently $1.53 a pound, according to the National Pasta Association, a trade group, and Walter N. George, president of the American Italian Pasta Company, said that may eventually increase by 10 to 20 cents.
“The shopper may see slightly higher prices at retail, and over the course of the next 18 months should see those prices begin to come to more normal levels given a replenishment of the durum stocks,” he said.
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