After being hammered by record high food prices in 2011, which helped ignite the Arab Spring uprisings, consumers worldwide may find some relief in 2012 if U.S. farmers, induced by last year's high crop prices, plant more fields to grain this year.
Analysts polled by Reuters expect prices of corn, soybeans and wheat to tumble as much as 15 per cent from a year ago, which will benefit companies that produce meat like Pilgrim's Pride Corp, Sanderson Farms and Tyson Foods Inc. in terms of lower feed costs.
U.S. farmers planting the most winter wheat in three years and a bin-busting corn crop expected this spring could finally calm markets that have been on tenterhooks as razor-thin stocks have triggered sharp price surges with every weather scare.
Analysts polled by Reuters expect prices for U.S. corn -- the largest crop by acreage in the United States -- to slide to a three-year low.
While that may help lower costs for meat companies, U.S. consumers are likely to pay more for beef this year.
One of the worst droughts since the Dust Bowl in the 1930s in top cattle state Texas is shrinking the cattle supply, plus record high feed costs last year and competition for farmland are decreasing the herd.
Retail prices for beef are already at a record high above $5 a pound, and the supply of cattle should remain tight for a few years. Even if ranchers begin to expand herds now -- it takes more than two years for cattle to go from birth to a slice of beef.
As in every crop cycle, the weather this year will play a crucial role in whether consumers get a break in food prices, especially if the La Nina phenomenon, which has caused a drought in South America, continues to prevail.
A handful of traders is speculating that a dry summer in the Midwestern United States will slash crop production this year, which would negate any decline in food prices.
"We'll probably see some decline in raw commodities prices this year given there's a return to normal weather," said John Anderson, a senior economist with the American Farm Bureau Federation, which represents ranchers and farmers.
"If there is a drought in the Midwest, all bets are off," he said, adding that food prices would also be tied to how the dispute between Western nations and Iran over Tehran's nuclear ambitions and the euro zone debt crisis are resolved.
The United Nations' FAO food agency said earlier this month that world food prices fell in December from the previous month due to sharp declines in sugar, cereals and vegetable oils.
The agency's food price index measures price changes for a basket of foods like dairy, meat and cereals, and that index fell in December to extend a downtrend of the past few months.
A Reuters poll of 12 analysts showed that they expect the price of U.S. corn to average $5.47 (U.S.) per bushel at the end of this year, 15 per cent below 2011's average of $6.47.
It would be the biggest year-on-year per centage decline in nine years. It would follow the surge in corn futures at the Chicago Board of Trade to an all-time high of $7.99-3/4 per bushel in June 2011.
The lower cost of feedstocks, like corn, will also help the bottom lines of U.S. ethanol producers, who use about 40 per cent of the total domestic corn crop.
Big U.S. crops in the cards Price estimates ranged widely from a low of $4 per bushel, which would be the lowest year-end price in seven years, to what would be a record high of $8.12 -- the only forecast that was above the 2011's year-end price.
Corn stocks in the United States, the world's largest exporter of the grain, are forecast to be the smallest in 16 years at the end of the season this summer.
Stocks next year could increase as many analysts expect farmers to plant 94 million to 96 million acres of corn this year. The range, if it materializes, would be the second largest acreage since 1944.
Wheat prices at the Chicago Board of Trade are expected to fall 6.7 per cent by the end of this year from a year earlier to $6.09 per bushel.
"We still think we are in an ample world supply (market)," said Don Roose, analyst with U.S. Commodities. "We think that is going to continue. We are banking on the (idea) that we do not see big production drops."
World wheat stocks are forecast to be the largest in 12 years and the second largest in the past 50 years.
U.S. soybean prices are expected to fall for a second straight year to $11.47 at the end of 2012, down about 4 per cent from a year earlier, according to the Reuters poll.
Agricultural economist Darrel Good of the University of Illinois in Urbana-Champaign said he was expecting the retail price of U.S. beef to continue rising this year and later.
"Cattle inventory is at a 60-year low and meat supplies are going to be pretty tight," he said, adding that the increase in beef prices could spur production of chicken and pork as consumers substitute cheaper meats for beef.
Live cattle futures at the Chicago Mercantile Exchange rose to an all-time of 126.375 cents lb last week and are up 13 per cent from a year ago.