In the volatile world of farm commodities, all it takes these days is a little surprise to send grain prices a lot higher.
The U.S. Department of Agriculture delivered just that kind of surprise Wednesday, when the agency reported that last year's corn and soybean crop was smaller than its earlier estimates.
As a result, prices for corn, soybeans and wheat are rising quickly, sparking concern about higher food prices.
The final figures on the 2010 harvest mean that the world's stockpile of corn and soybeans is shrinking, grain analyst Darin Newsom said.
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"The supply and demand situation is tightening -- about as tight as we've seen it," Newsom said. The news of tighter grain stocks sent corn and soybean prices four percent higher on Wednesday, continuing a year-long surge.
Newsom said the supply-demand equation is being pinched at both ends.
The problems span the globe. Last summer it was drought in Russia and a smaller than expected U.S. corn crop. Floods in Australia are now expected to hurt wheat production, while dry weather in Argentina shrinks the soybean and corn harvest there.
Meanwhile, world demand for grain keeps increasing, with one country in particular leading the surge.
"In the big picture, China certainly," Newsom said. "Chinese demand for soybeans, the possibility of increased Chinese demand for corn."
The impact of the turbulent markets is being felt in the headquarters of one the world's largest grain traders. Minneapolis-based Cargill reported Wednesday that its net income nearly tripled in the last quarter compared to a year earlier.
Cargill spokeswoman Lisa Clemens said part of the reason for the jump was the grain markets. She said the supply and demand imbalances meant the company profited by handling larger volumes of grain.
"We're in the business of bringing grain from areas of surplus to areas of deficit," Clemens said. "And we did a lot of that this last quarter."
The surge in grain prices has also renewed worries about inflation in food prices. Officially, the government forecasts modest food hikes this year, in the two- or three-percent range.
But that forecast doesn't include the most recent grain price increases. At least one national grocery store chain is predicting inflation could be a real headache this year. In a conference call earlier this week, SuperValu CEO Craig Herkert said the company is seeing suppliers hike prices on individual food items anywhere from three to 14 percent.
"This is going to be a challenging year to manage inflation," Herkert said. "It's just a fact and we believe these inflationary measures are going to impact consumers."
The problem of rising food prices is already apparent in many countries, said Daniel Gustafson, director of the United Nations Food and Agriculture Organization's office in Washington. Each month the U.N. calculates an index of world food prices.
"The most recent month is December, 2010," Gustafson said. "And that number was at its highest level ever."
That means it's even higher than in 2008, when rising food prices caused riots in some parts of the world. So far, Gustafson said, that hasn't happened with the latest increases, but says higher food costs are a cause for concern.
"For millions and millions of households, a price increase above already high levels would be just devastating," he said.
Gustafson said the current supply demand imbalance makes next summer's U.S. crop extremely important. As the world's largest corn exporter, farmers here need good yields to help re-build grain supplies worldwide.