Small corn surplus likely to keep food prices high

The U.S. government has barely changed its estimate for next year’s corn surplus, which is expected to stay small and keep high food prices high. The Department of Agriculture today estimated that farmers will have 848 million bushels of corn on hand at the end of next summer. That’s up less than 1% from last month’s forecast. Next year’s surplus would satisfy demand for fewer than 25 days. A 30-day supply is considered healthy. Higher corn prices have pushed overall food inflation up this year. Corn is an ingredient in everything from animal feed to cereal to soft drinks. The USDA expects food prices to have increased 4.5% at the end of 2011, and estimates prices will rise as much as 3.5% next year. Fears of a corn shortage pushed the price to a record high of $7.99 a bushel in June. Corn prices have eased slightly since then to around $6 per bushel. Corn traded for about $2 a bushel for several years until 2005. Government mandates and subsidies that year helped the ethanol businesses expand. The surplus is at historically low levels because of increased demand from ethanol makers and also from livestock producers.