Lower global crop prices to ease food inflation: USDA

ARLINGTON, Virginia Thu Feb 23, 2012 12:56pm EST

ARLINGTON, Virginia (Reuters) - Global crop prices will retreat sharply this year as farmers around the world expand production to bring stability back to commodity markets and ease fears of food inflation, the U.S. government forecast on Thursday.

After two years of razor thin stocks, world crop supplies, led by wheat, are recovering.

"Certainly the high prices that we saw last year have prompted a global production response for most commodities," USDA Chief Economist Joe Glauber told the agency's annual outlook forum.

"This should help relieve some of the volatility that have roiled markets over the past five years and improve prospects for future livestock expansion," he said.

Also on Thursday, the International Grains Council in its monthly update raised its global wheat production forecast by five million tonnes to a record 695 million and raised its global corn production forecast by 3 million tonnes to 864 million.

U.S. corn prices, a key barometer for farmers, could retreat 20 percent this year to around $5 a bushel while farm income would shrink 11.5 percent, USDA forecasted.

U.S. food prices are expected to rise 2.5 to 3.5 percent this year after leaping nearly 5 percent in 2011, according to a USDA forecast released on Thursday.

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Graphic for food inflation: r.reuters.com/wam76s

Corn acreage projections: link.reuters.com/tax56s

Soybean acreage projections: link.reuters.com/sax56s

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There are still a number of uncertainties in the forecast, Glauber noted, such as drought withering crops in South America and in the southern United States.

Weather, particularly in Texas, "will be a key concern this year," he said.

Despite forecasts of lower prices, U.S. farmers are should go on a planting binge this year. Planting of the eight major crops in the United States were forecast to rise 2.2 percent to 254.4 million acres from 2011.

It would be the largest area sown to wheat, corn, sorghum, barley, oats, rice, soybeans and upland cotton since 258.6 million acres in 1997, another boom time for U.S. agriculture.

The estimate was up 1.3 percent from a projection made in early February, due to more soybean and wheat acres.

Farmers will sow some 94 million acres of U.S. corn this year -- enough to grow the first 14-billion-bushel crop, USDA projected. The plantings would be up 2 million acres from last year. The extra supplies will help boost corn stocks, along with slowing demand for ethanol.

"Slowing demand for ethanol means corn stocks will likely increase in 2012, assuming a return to trend yields," Glauber said.

Glauber said the farm community's "debt picture still continues to be quite, quite good" following a spike in land prices.

U.S. agriculture exports are expected to fall $1 billion to $131 billion this year, but will still be the second highest on record.

(Additional reporting by Emily Stephenson and Thomas Polansek; Editing by Russell Blinch, Lisa Shumaker, and Bob Burgdorfer)