Corn and soybeans jumped to the highest prices since July 2008 and wheat rose after the government cut forecasts for U.S. inventories, signaling tighter food supply as demand increases and adverse weather hurts crops.

Production of corn in the U.S., the world's largest grain exporter, dropped 4.9 percent last year and will leave supply before the 2011 harvest at the lowest in 15 years, the Department of Agriculture said today. The agency also cut its estimate of the soybean crop by 1.4 percent and said domestic wheat inventories will be 16 percent less than a year earlier.

Corn, used mostly in livestock feed, has surged more than 60 percent in the past year, while soybeans and wheat advanced 45 percent. Wholesale world food prices tracked by the United Nations rose 25 percent last year to a record, fueled partly by rallies in grains and oilseeds. Exports of U.S. crops are headed to the highest ever, boosting farm income and profit for agriculture companies including Cargill Inc. and Deere & Co.

"There's no room for error anymore" on farms around the world, said Dan Basse, the president of AgResouce Co., a commodity consultant in Chicago. "With any weather issues, we're going to make new all-time highs in corn and soybeans, and to a lesser degree, wheat futures."

Drought ruined wheat fields in Russia last year and too much rain diminished supplies of the grain from Canada. Adverse weather led to a drop in 2010 corn production in the U.S. and a smaller harvest of soybeans than expected, government data show.

Planting Pressure

"The pressure is acute, in terms of planting fence row to fence row, and really getting the message out to farmers that they need to be planting up their front yards," Basse said today on a conference call with reporters and analysts.

David Fuller's view Farmers will do just that, we can be sure. However the key variable will be weather, particularly concerning whether the La Niña dissipates in early spring, or risks more havoc by continuing into midyear.

Fortunately, this story is well known to Fullermoney subscribers. I will discuss this latest surge in commodity prices in tonight's Audio.

Here is a related article: "Commodities Touch Two-Year High on Economic Growth Outlook, Smaller Crops".


Here is the full USDA report.