Uncertainty over U. S. spring plantings of corn and soybeans and recent weakness in the dollar have brought a resurgence in grain prices that spells fresh headaches for consumers and food makers this year.
The commodities, at the base of a food chain that feeds into hundreds of supermarket products, from oils to starches to meats and poultry, may also cause concerns at the Federal Reserve and other inflation-minded policy-makers.
Corn spiked to a seven-week high of $3.99 a bushel in the third week of March, while soybeans were holding above $9 and wheat at $5.40.
Those prices are far below last summer’s record highs but well off winter lows that, like weaker crude oil, eased worries among economists and central bankers about inflation.
But fundamental fears of shortages in a world of rising population, climate worries and biofuels demand may be emerging as a counter to recent assumptions that the global economic crisis will simply reduce the market for grain in 2009.
“Americans don’t like food prices going higher, but there’s not a lot anybody can do about it,” Dan Basse, president of consultancy AgResource, told the Reuters Food and Agricultural Summit in Chicago.
Midwest corn, soybeans and wheat output will play a key role in determining prices, given their central role in the world food system and the start of U. S. spring planting.
The U. S. Agriculture Department is forecasting consumer food prices will rise 3.5 per cent in 2009, marking the third straight year of gains at that pace or more.
“We have found that food demand, grain demand, oilseed demand tends to be pretty insensitive to what the global economy is doing,” said Mark Palmquist, chief operating officer of CHS Inc., the largest U. S. farm co-operative. “It is really driven by demographics. We keep adding mouths to feed.”
So all eyes are on the USDA’s March 31 U. S. seeding estimates, executives and analysts at the summit agreed.
USDA’s prospective plantings reporting will be the first gauge of 2009 U. S. corn and soy output from farmer surveys.
Most analysts now expect farmers to seed a couple of million fewer corn acres than the 86 million planted last spring, mostly due to soaring fertilizer costs. Soy acreage may be up four million to five million from the 75.7 million planted in 2008, they say.
The wild card is biofuels. The omnibus energy law passed by Congress in December 2007 mandated steadily rising use of corn for years in the name of homegrown, renewable fuels. That bigger piece of the pie for corn-based ethanol was a key driver in the commodity’s rally to above $7 by last summer, although floods were also a factor.
The law still calls for corn-based ethanol use to expand to 15 billion gallons by 2015, up from 10.5 billion in 2009 – diverting more than one-third of the U. S. corn crop.
Moreover, the ethanol-to-gasoline blend rate could rise by two or three percentage points this year from 10 per cent currently, a move supported by new USDA Secretary Tom Vilsack.
The other bullish impetus for all grains is the recent softening of the dollar, which makes U. S. commodities more attractive to overseas buyers.
Much of the 2008 commodity rally stemmed from the sliding dollar. The currency began turning around in July, as grains hit multi-year highs, and commodities began a long descent. But now change may be in the air.
“I think we are at the outset of potentially reversing that,” said Bill Lapp of Omahas consulting firm Advanced Economic Solutions. “The comments by the Chinese premier suggesting that they may find a different playground to put their currency in may have tremendous implications first of all for the value of the dollar and secondly and certainly dramatically for the price of commodities.”