Monday, January 31, 2011

The Era Of Cheap Food Is Coming To An End

That's according to a Reuters Poll.

U.S. grain prices should stay unrelentingly high this year, according to a Reuters poll, the latest sign that the era of cheap food has come to an end.

U.S. corn, soybeans and wheat prices -- which surged by as much has 50 percent last year and hit their highest levels since mid-2008 -- will dip by at most 5 percent by the end of 2011, according to the poll of 16 analysts.

The expectations may also strengthen importers' resolve to build bigger inventories after a year in which stocks of corn and soybeans in the United States -- the world's top exporter -- dwindled to their lowest level in decades.The forecasts suggest no quick relief for nations bedeviled by record high food costs that have stoked civil unrest. It means any extreme weather event in a grains-producing part of the world could send prices soaring further.

Inventories are dwindling - energy prices associated with food production are on the rise and demand is growing in countries that have been hit with drought or other natural disasters.

A summer drought in Russia led to a suspension of grain exports, rains in Australia downgraded the quality of its wheat crop, and a lack of rain cut Argentine corn output. China bought near-record volumes of U.S. corn, and demand for corn-based ethanol surged.A series of shocks brought the grains market to the brink last year.

U.S. Farmers are having difficult times as well, and the price of their harvest will have to be kept high enough to encourage them to grow more corn and soybeans this spring.

The fact is that U.S. stockpiles of corn fell to the lowest in 15 years in the wake of strong demand from the ethanol industry and steady exports after the Russian drought.

Grain prices have been going up, and signs of food price inflation is already being seen at grocery stores. It can be argued that inflation is not merely from grain scarcity, but because the dollar is losing its buying power overall.

Lesser developed countries are struggling, and those with higher populations are the most commodity dependent. Countries like China and India are home to one-third of the world's population. They are trying to balance their money supply, cost of capital and demand for commodities, but they still have many mouths to feed.
"As food inflation becomes a bigger issue in the lesser-developed countries, the global pipeline for food commodities is expanding. The world wants to own a little more inventory," said grains analyst Terry Roggensack of The Hightower Report in Chicago.

For North African countries like Algeria, the rush to import grains, particularly in the past two weeks, has been fueled by concerns about how to reduce populist anger over rising food costs that has led to riots.

With the stepped-up demand from North Africa and the Middle East whittling away at global wheat stocks, there is no room for error with the winter wheat crop in the United States that was planted last fall and will be harvested in the summer. the same goes for the wheat crops in China -- the world's largest grower.

"We are not in a good situation going into February and March in China and in the U.S., so wheat is on the verge of a real scare," Roggensack said.

How does this all affect us here in the United States?
- Scarcity pushes prices up.
- "Zimbabwe Ben Bernanke" printing more money pushes prices up.
- Farmers needing more money to pay for their seeds and comply with a multitude of growing government regulations pushes prices up.

How many small to medium family farms have been sold, foreclosed on or just stopped producing?
That's a problem for this country too.

I'd say we have a looming food-flation crisis coming.
For now - buy local and support your local farms.
Grow some of your own produce and keep your larder stocked.
You may need to have your own surplus to draw from before too long.

(H/T Diane C.)