Variety of factors getting food from farm to market makes predicting prices difficult

Star Tribune (Minneapolis) (MCT) - Forecasting food prices at the grocery store is a lot like predicting the flood stages of the Red River of the North. A lot of data feeds into the equation, and the numbers are constantly changing.

Recent surveys have found that farmers, reeling from high fertilizer prices, are cutting back on the acreage of corn they're planting and ramping up planting of soybeans. Total acreage planted is dropping, too. Generally speaking, shrinking supplies will drive up prices, assuming demand remains the same.

So consumers could be facing another year of roller-coaster food prices. But don't stock up your root cellar just yet.

_Cheaper energy, with oil closing at $52.24 a barrel on the New York Mercantile Exchange, should prevent the runaway food prices of last year.

_The nation has more food stocked up than it did at this time last year.

_And investors who romanced agricultural commodities last year have abandoned the food game, easing competition for futures contracts.

What does that mean for farmers? It's definitely not the good old days of last year, when they reaped one of the most profitable harvests on record.

"They aren't going to see those high prices that we were all so giddy and amazed about," said Kent Olson, professor of applied economics at the University of Minnesota.

Food prices rose 5.5 percent last year, the largest increase since 1990, according to the Economic Research Service (ERS) at the U.S. Department of Agriculture. The USDA recently predicted food prices would rise 3 to 4 percent this year.

One reason prices have remained high is that we're still eating through last year's agricultural bonanza, which was produced with more expensive input costs like fuel and fertilizer.

Some 1.74 billion bushels of corn remain in storage, comfortably ahead of the 1.6 billion bushels in the cupboard at this time last year, said John Sanow, a commodity analyst at DTN, an Omaha-based business news service. Similarly, wheat stocks stand at 15 weeks of consumption, compared with just over seven weeks at this time last year.

Yet food prices are dropping in some aisles of the supermarket.

We're paying less for cheese, milk and vegetable oil today than we were just three months ago, an American Farm Bureau Federation survey recently reported. A shopping bag of staple foods costs about 5.5 percent less than it did at the end of 2008, with everything from eggs to orange juice to apples costing less. Ham, sirloin and bread flour prices rose slightly, however.

And, yet, for many farmers, the price to get into the field still smacks of 2008, with costs for machinery, seed, land and chemicals rising.

Corn depletes the soil of nutrients and requires large amounts of fertilizer. It will cost Iowa farmers $5.10 a bushel to grow corn on land that grew corn last year, according to Michael Duffy, an economist at Iowa State University. That's up 22 percent from $4.17 a bushel in 2008, and up 66 percent from five years ago.

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Corn prices have fallen from a high above $7 a bushel last summer to $3.97 a bushel in futures trading at the Chicago Board of Trade this week. But that won't mean a big drop in the price of corn flakes. Corn is a relatively small part of the cost of such cereal.

Fuel, seed, feed and fertilizers will cost farmers just about as much this year as last year, according to the USDA. The agency says a 46 percent drop in diesel fuel costs will be offset by higher prices for herbicide, insecticide and fungicide, which are up 19 percent, and machinery, up 9 percent.

The same report shows that the prices paid to farmers for livestock and nearly every crop had fallen from last year, in some cases by a third. Exceptions were vegetables, up 9 percent, and potatoes and dry beans, up 5.4 percent.

Fertilizer sales plummeted late last year as farmers waited to see which way the markets would go. Sales of phosphate, a key fertilizer ingredient, fell 61 percent from a year earlier, according to Mosaic, the Plymouth-based fertilizer giant.

The fertilizer requirements for corn can be offset by planting in a field that previously supported soybeans, which might account for some farmers' decisions to shift crops this year.

Mosaic expects farmers overall will use 9 to 13 percent less fertilizer this year than last _ the largest one-year drop in fertilizer sales in 25 years _ and one that could cut into yields this fall. Farmers didn't put down as much fertilizer as usual last fall because of a late harvest and market volatility for corn.

Now, with lower prices and tighter margins, farmers are favoring soybeans, which don't require as much fertilizer.

That's good news for Minnesota hog farmers, who would benefit if feed costs dropped. But the memory of last year still looms large, even if it's only a memory, said Doug Wenner, a St. Peter, Minn., livestock and crop farmer.

"You hear people talk about it," said Wenner, who's serving as president of the Minnesota Pork Board. "We could have a roller-coaster ride like we had last year."

An economics professor who compiles annual statistics on Iowa's farm economy said wildly gyrating prices made it harder than ever to chart this year's numbers.

Prices for nitrogen, a key ingredient in fertilizer, bedeviled farmers' budget planning by yo-yoing up and down for months, from $385 a ton in July to $950 a ton in October to $125 a ton in December.

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"It just shot up all over the board like that," said Michael Duffy, an economics professor at Iowa State University.

Nationwide, farmers plan to seed 85 million acres of corn this year, down 1 percent from a year earlier, according to a March USDA survey of 86,000 farmers. The survey found that soybean acreage would increase 0.4 percent, to 76 million acres, while wheat planting could fall by 7 percent, to 58.6 million acres.

Statewide, farmers will plant 7.6 million acres of corn, down 1 percent from last year; 1.8 million acres of wheat, a 7 percent drop; and 7 million acres of soybeans, 1 percent less than last year.

Lower prices drove much of the farmers' planting decisions. The new crop price of corn hit $6.20 a bushel during the April and May planting season last year, but the new crop price fell to $4.36 by March 31 of this year, a revenue drop of $300 to $350 an acre, according to a report published this week by Mosaic analysts.

Still, corn planting won't start for many Minnesota farmers for two weeks or more. And as floodwaters wash through the Red River Valley, wheat farmers wonder if they'll get into their fields for the optimal planting season. Delays into May could reduce the size of this year's wheat crop.

A week of sunny weather would be enough to get the ground ready for planting, said Jochum Wiersma, a wheat specialist with the university's extension service. But that's assuming the best. And so far, farmers are still dealing with the wild ways of the Red River, which spilled over its banks this spring in flooding that continues to threaten Fargo, N.D., and Moorhead, Minn.

"A lot of things can make those (crop estimates) change," said Mark Hamerlink, of the Minnesota Corn Growers Association.

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