Outlook for Food Prices: High

The seeds of a sustained increase in food prices are about to be sown in Mississippi, Nebraska and other farm-belt states across the U.S.

As American farmers prepare to plant their next crops, they must decide how much, and what, to plant.

With prices for everything from corn to cotton and soybeans soaring, the overall mix of production is likely to be similar to last year, instead of a major turn toward one hot crop, a move that would likely drive down the price of that crop.

In past years there have been some big acreage swings, but analysts expect mostly minor changes when the U.S. Department of Agriculture releases a closely watched survey of farmers' intentions next month. Only a limited amount of idle land can be brought into production, further capping supply.

That could help extend the commodities rally, which has already seen corn futures jump 92% over the past year, soybeans rise 44%, wheat gain 69% and cotton soar 162%.

With worries rising about the world's food supply, planting decisions are critical. The U.S. provides more than half of global corn exports and over 40% of soybean exports.

Mike Sturdivant Jr. plans to divide his family's more than 10,000-acre farm in Glendora, Miss., between corn, soybeans and cotton, in almost exactly the same ratio as in 2010.

"We think that we're locking in a reasonable chance of a profit," said Mr. Sturdivant, who said he expects to start planting next month.

He already has sold much of his anticipated harvest, he said, benefiting from earlier price rises.

The actions of Mr. Sturdivant show how the commodity price rally is feeding on itself, and how it could keep stockpiles thin for months to come. It also means that refilling the world's larders to comfortable levels will depend on getting bumper harvests.

Mike Sturdivant Jr. has kept a similar mix in his crops. 'I don't want to get too far out of kilter,' he said.

"You would need very robust, if not record, yields to achieve that," said Alex Bos, an agriculture analyst with Macquarie Group Ltd.

As the broad agricultural rally gained steam in recent months, there were hopes for bountiful harvests in other major growing regions, such as South America or Australia, that might alleviate tight supplies of specific crops, driving U.S. farmers to increase production of others.

But crops in many countries have been hurt by bad weather, keeping prices high across the board.

Persistent demand also has helped erode global stockpiles, which are used to ensure a steady flow of food and protect against shocks.

Current corn stocks amount to about 5% of annual use, far below the average of 13.6% over the past 15 years, according to U.S. data.

In order to get back to average stockpiles, U.S. farmers would have to plant eight million to 10 million more acres of corn, estimates Joseph Glauber, the USDA's chief economist. Restoring soybean stocks would require another three million to four million acres.

"Obviously, this is more acreage than is likely to be planted to corn and soybeans this year," Mr. Glauber said in an email message.

In past years, U.S. farmers have shifted millions of acres from one crop to another. In 2007, they planted 15.2 million more acres with corn than in 2006, a 19% jump—at the expense of soybeans and cotton—amid strong demand for corn to make ethanol.

This year, expectations are more modest. Macquarie forecasts that U.S. farmers will plant 90.5 million acres of corn, up from 88.2 million last year.

The USDA, meanwhile, estimates U.S. farmers will plant 92 million acres of corn. The USDA forecasts 78 million acres of soybeans, virtually unchanged from last year's 77.7 million. Those statistical forecasts are distinct from the upcoming month's farmer survey.

Another obstacle to expanding supplies is the difficulty of putting new farmland into production. It takes years to clear and prepare large tracts outside the U.S., such as in the former Soviet Union and South America, said Mr. Bos of Macquarie.

In the U.S., there is some land available. Gerald Bange, who chairs the USDA's World Agricultural Outlook Board, noted recently that there were 10.7 million fewer acres in play for major crops last year than in 2008, including land idled under a federal conservation program.

But some think a smaller amount of acres will be pressed into service, in part because land in the conservation program is typically less productive.

A particularly abundant crop in the U.S. could alleviate some of the supply pressures, sending commodity prices lower. Strong harvests in Russia, China, and elsewhere could also ease concerns.

As well, persistently high prices—cotton is at an all-time high in nominal terms—could also entice farmers to make bigger changes in their planting as they make final decisions in the coming weeks.

Still, their flexibility to make changes is limited in many cases. Many farmers have presold some of their anticipated harvests to take advantage of high prices, as Mr. Sturdivant did.

Another reason to maintain the status quo: Farmers have the luxury of planting what they want, rather than needing to take risks with their crops—such as growing corn on the same land in two consecutive seasons.

"I think we'll see folks go back to more traditional rotation," said Jon Holzfaster, a farmer in Paxton, Neb. There is "nothing to penalize you economically," he said.

Still, Mr. Sturdivant is expanding U.S. crop production in at least one way. His one big departure from typical practice was planting more than 2,000 acres of winter wheat. He will harvest the wheat in June, then plant soybeans to squeeze in an extra crop.

Mr. Sturdivant also pondered cutting his cotton acres to boost soybean output. But when cotton prices kept rocketing skyward, he decided to revert to his usual mix.

"I don't want to get too far out of kilter," he said.

(Source: http://online.wsj.com/article/SB10001424052748703961104576148722014393308.html)