U.S. food prices are expected to stay high through 2012 because heavy rains and extreme flooding will likely cut the size of this fall's corn harvest.
The United States will have a surplus of just 695 million bushels of corn in 2012. That would be the tightest surplus level in 15 years, and far less than the 900 million bushels estimated last month.
A wet spring delayed planting schedules and will likely diminish crops by harvest time in September, the Agriculture Department said Thursday. This followed a more optimistic forecast from the government in May, which predicted a drop in corn exports that could have replenished U.S. food supplies and eased prices.
More expensive grain has led to food price increases this year. That 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.
The projected shortage caused corn prices to surge on global markets to a record high. Contracts for July delivery jumping 22 cents to roughly $7.86 a bushel, surpassing April's previous record by three cents.
Heavy rain prevented farmers from planting about 1.5 million acres of corn, said Joe Glauber, the USDA's chief economist. In addition to that, Glauber said flooding along the Mississippi River and elsewhere wiped out about 400,000 acres of planted corn.
The United States will have a surplus of 730 million bushels at the end of August, when next year's harvest begins. That's enough to satisfy demand for 20 days. But the harsh weather will cut that 2012 surplus down to an 18-day supply.
A 30-day supply is the level considered healthy by most investors.
If the USDA predictions hold, U.S. corn supplies over the next two years will be at their tightest levels since 1995, Glauber said. Surpluses would amount to only about 5 percent of the total needed each year.
Traders are nervous that even small supply disruptions this summer could cause a serious shortage, said Jason Ward, and analyst with Northstar Commodity in Minneapolis.
"We need to have a very optimal summer from here out," Ward said. "We've already had all these problems up until this point, and now it's time to get serious."
The number of acres planted this year was cut to 90.7 million, from last month's estimate of 92.2 million. And the total area expected to be harvested will drop to 83.2 million acres from last month's estimate of 85.1 million acres.
Corn is used to feed cattle, pigs and chickens and is a major ingredient in cereals and soft drinks. But it can take months for high crop prices to work their way to grocery-store shelves. That's because food processors and grocers are slow to pass on the savings to consumers after to food industry swallowed higher costs for months.
Soybean supplies aren't quite so tight, according to Thursday's report. The agency predicted that the soybean surplus will grow slightly by August, and will jump from 180 million bushels this August to 190 million bushels next August. Soybean futures fell on the news, dropping about 8 cents to $13.94 a bushel.