The U.S. Agriculture Department surveyed about 86,000 U.S. farmers to find out what they intend to plant this year.
The survey found that farmers plan an 18 percent increase in soybean acres and a six percent increase in wheat seedings. Northstar Commodity analyst Jason Ward said the news had an immediate impact on the grain markets.
"Dramatic, would be a short way to sum it up," said Ward.
For the day the price of soybeans and wheat fell about 6 percent as the prospects of more supply drove bids for the crops down.
Grain prices have risen dramatically in the last year with some wheat contracts reaching all-time highs. The high prices have helped push up the cost of many food items, including staples like, bread, milk and meat. With more acres expected to go to soybeans and wheat, the USDA predicted the amount of corn grown in the U.S. this year will drop, down about 8 percent from last year. Despite the big change, corn prices rose only moderately.
Market analyst Jason Ward said the big price drops in soybeans and wheat tended to dampen bidding for all grains, including corn. The run-up in grain prices in recent months has helped push food costs higher, up five percent in the last year. High wheat prices even mobilized bakers to lobby Washington for changes in farm policies.
Lee Sanders with the American Bakers Association hopes the USDA survey and the drop in wheat prices means a break for the industry.
"Well from this initial report, this does look like some positive news for bakers," said Sanders.
Sanders said the price of flour has increased more than 50 percent since the start of the year. Several weeks ago representatives of about 80 baking companies descended on Washington to push for changes in federal policy to address food inflation. The bakers would like some cropland, currently idled under federal conservation programs, returned to production. That would increase grain supplies and lower prices. The bakers would also like to see the ethanol import tariff lifted. That could ease demand for U.S. corn. Ethanol production has helped double corn prices in the last 18 months.
It's too soon to know if the downturn in soybean and wheat prices will be a one day event, or will continue. Jean Kinsey, Director of the University of Minnesota's Food Industry Center, said even if grain prices continue to fall, it's unclear what benefits consumers will notice.
"Prices, particularly at the retail end, are what we call sticky upwards," says Kinsey. "So once those prices have gone up, it's unlikely that they're going to go down just because the price of wheat goes down. Once that price has gone up, unless there's real competition between one store and another or one brand of bread and another, it's likely that the higher price will stay."
The USDA planting report come early in the crop season. Most farmers have not started spring field work. It's possible some farmers will change their planting intentions.
Many grain analysts believe some farmers could decide to boost their corn acres in reaction to the report. That's especially likely if soybean and wheat prices continue to fall.