Crop report hints at volatile 2008

WASHINGTON -- Expect high food prices and volatile markets ahead.

The U.S. Agriculture Department, in an eagerly anticipated report Monday, predicted the nation's farmers will plant 8% less corn this year than in 2007 while boosting soybean and wheat production.

The upshot is that corn prices, already at their highest in decades because of surging demand for food, feed and federally subsidized ethanol, could jump still more. That could pinch consumers, who buy a dizzying array of corn-containing products: from soft drinks made with high-fructose corn syrup to plastic containers made from the grain.

It could also hit the bottom line of ethanol refiners, despite their federal price supports.

At the same time, soybean prices are expected to dip a bit, though staying at historically elevated levels, analysts say. Wheat prices could decline substantially — though remaining well above longtime averages — as farmers here and in other nations boost output. Shoppers, who have been paying more for bread and pasta, could benefit.

But production and price predictions can be as variable as the weather. With worldwide demand high and grain stockpiles at their lowest in decades, any sort of weather shock this growing season would reverberate in already nervous futures markets.

"This report sets the stage for what seems to be a wildly gyrating market for the rest of 2008," says Jim Bower, president of Bower Trading. "Our (stockpiles) are down so dang low here in the U.S., we really don't have much margin for error."

The crop report comes amid the biggest agricultural boom since the 1970s. Grain prices have been boosted by growing appetites in surging economies such as China and India. The falling value of the dollar has made U.S. grain more attractive abroad, boosting exports. Demand has been so strong that U.S. wheat stockpiles hit their lowest levels since the late 1940s.

High energy prices have increased the cost of production. In addition, the U.S. and other nations have mandated increased use of biofuels, including corn-based ethanol. That has led to competition for acreage, contributed to a doubling of many grain prices and caused food riots in nations such as China and Pakistan.