Stunted corn crop could lead to higher food prices

Smaller-than-expected corn harvests are likely to keep corn prices elevated into next year, economists say, driving up retail food prices. That could further dampen consumer spending in an economy hobbled by high unemployment and modest wage increases.

Corn is the single-biggest driver of food prices, says Bob Bresnahan, CEO of agriculture consulting firm Trilateral. It's used in everything from animal feed to cereal.

U.S. corn prices have surged about 70% since August 2010 to more than $7 a bushel because of rising demand in emerging markets such as China and a Russian ban on wheat exports after a drought last year. Wheat and corn are used interchangeably as feed for cows and poultry. Corn futures for September delivery closed Friday at $7.11 a bushel.

Higher prices led farmers to plant a near-record crop last spring, using more acres for corn and less for soybeans and wheat. That helped drive up prices for soybeans and wheat and for food in general.

A big corn harvest was expected to push down corn prices and moderate retail food bills. But spring floods and summer heat in the Midwest and drought in Texas and Oklahoma killed crops and cut yields. The U.S. Department of Agriculture has cut its forecast for the fall harvest from a record 13.5 billion bushels to 12.9 billion. That would still be the third-largest corn crop ever.

Paul Bertels, economist at the National Corn Growers Association, says recent surveys show even more acres lost to floods and heat than U.S. officials estimated.

Wells Fargo economist Michael Swanson doesn't expect the sluggish global economy to offset demand in developing countries. Swanson expects corn prices of $6.90 to $7.90 a bushel the next 12 months to help push up retail food prices 4% next year, on top of about 4% this year.

Corn farmer Garry Niemeyer in Auburn, Ill., was hit with 6 inches of rain in mid-June and scorching July heat. He expects to harvest 255,000 bushels, compared with a typical 300,000. "I'm just going to have a so-so year," he says.

Foodmakers and restaurants have absorbed most of corn's higher costs, says Bill Lapp, head of Advanced Economic Solutions, a commodity consulting firm. "Ultimately you're going to see it show up" in retail prices.