Perfect storm in grains market

Tag : Control System Regulator


The loss of the latest crop in Iowa, which produces the bulk ofAmerica's corn, has much bigger ramifications than this year'swheat and rice price spikes because corn has such a crucial impacton the rest of the economy.

Even though the flooding might not be as bad as in 1993, when theMississippi crested later, on July 9, allowing no time for the landto dry out and plant any replacement crops, this time other factorsare making conditions worse.

It's not just the huge increase in corn used for ethanol biofuel,or its myriad other uses, but the fact US livestock are mainly fedon corn, which will have a negative impact on American farmers -though it should prove good news for farmers of Australia'sgrass-fed cattle stock.

"As corn goes higher there will start to be a dramatic pricemovement in livestock," Ag Resource's Wagner says.

"My observation is that is in fact a very, very big mess - youcould see the food consumer price index jumping close to doubledigits.

"It's a very big issue and will cause major dislocation into 2009and beyond. We're going to be in a period of extended foodinflation which this country has not seen in a very long time."

There is perhaps further upside for Australian farmers after therecent fallback in wheat prices, which have dropped from theirpeaks of earlier this year, Wagner says.

Because of the floods, the extra acreage given to ease the wheatshortage in the US could now go to other crops like soybeans.

He says wheat prices might not return to their record $US15 abushel levels, but could lift above the present $US8.60 level toabout $US12 a bushel.

"Australian farmers are directly affected by what we do here inChicago, and that is providing liquidity," Wagner says.

The wheat and rice price rises of early 2007 prompted media scarestories about bakeries not being able to provide bread, andwarnings of the stockpiling of rice at city supermarkets. Even thefront page of The New York Times ran a story on Australia's drought contributing to the worldwiderice shortage.

But that hysteria might be nothing compared to the impending corncrisis. One talkshow host on Fox cable TV last week proudly boastedthat at the start of the year he had warned viewers to hoard food.Indeed, he reiterated that the Midwest floods meant people shouldstock up on things like cornflakes. His program was dubbed The Perfect Storm.

It all comes against the backdrop of a tension-filled election yearthat has seen Congress holding hearings into alleged manipulationof oil markets by speculators.