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 Plunge in corn prices may ease food inflation

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Join date : 2011-03-24

PostSubject: Plunge in corn prices may ease food inflation   Fri Jul 01, 2011 2:39 pm

Plunge in corn prices may ease food inflation

The price of corn suffered its biggest fall for 15 years on Thursday, prompting speculation that the high cost of food may start to ease.

Corn prices fell 10% after a US Department of Agriculture report said that farmers were sowing unexpectedly large amounts of the grain.

The price of other crops, including soybeans, also fell on speculation that future stock levels will remain high.

Corn prices recently hit a record, helping to fuel inflation worries.

The report said farmers in the vast crop regions of Iowa and Minnesota had been planting substantially more grain.

Corn futures, which were just under an all-time high of $8 (£5) a bushel at the start of June, finished 9.9% down at $6.29 on Thursday. At one point, the price was down almost 12%.

Wheat futures ended 8.8% down, with soybeans 2.1% lower. The falls continued on Friday, with wheat futures down almost 2% in early Asia trading.

The Agriculture Department report, which said that far more grain acreage was being planted than expected, came despite recent bad weather in the US mid-west.

"There are some big surprises in this report," said Karl Setzer, commodity expert at the MaxYield Cooperative in Iowa.

The report said farmers had planted 92.282 million acres with corn this spring, well above an average trade estimate of 90.767 million acres.

The increase in planting comes as Russia is expected soon to lift a year-long ban on grain exports.

More expensive grain has led to food price rises, with everything from meat and cereal to soft drinks costing more in the supermarket.

A huge harvest in August is likely to slow food inflation, which was predicted to rise between 3%-4% this year in the US.

Analysts say it typically takes about six months for changes in commodity prices to feed into retail food prices.

"All of us who perceived tighter [corn] supplies... were proven wrong today," said Jason Ward, an analyst with Northstar Commodity.

However, Mr Ward pointed out that the extra acreage had yet to be harvested and could be damaged by further bad weather.

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