As those reserves decline, U.S. food companies are warning of retail price increases.

The ethanol industry's projected corn orders this year have risen 8%, to 13 billion bushels, after record-high production in December and January, the Agriculture Department said.

That means the U.S. will have a reserve of 675 million bushels left over in late August when this year's harvest begins. That is roughly 5% of all corn that will be consumed, the lowest surplus level since 1996.

The USDA report measures global supply and demand for grains, oilseeds and other crops. The department said its projections for wheat and soybean reserves remained unchanged at historically low levels.

The price of corn affects most food products in supermarkets. It is used to feed the cattle, hogs and chickens that fill the meat aisle. It is the main ingredient in Cap'n Crunch and Doritos. Turned into corn syrup, it sweetens most soft drinks.

Major food makers and some restaurants have already said they will be raising prices this year because they are paying more for corn, wheat, sugar, coffee and chocolate, all of which are at historically high prices. Weather, such as flooding in Australia and droughts elsewhere, has affected many crops this year.

A severe drought in China, the world's largest wheat grower, could force prices even higher.

"Consumers probably will see price hikes as early as three months from now, though most of the impact won't be felt for another six months," said Scott Irwin an agriculture economics professor at the University of Illinois.  

From the February 11, 2011, Prepared Foods' Daily News
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