Global grain stocks tighten, deluge in Australia
Australia's worst floods in decades shut down a key grains port, while the United States signaled further tightening of domestic and global supplies, heightening fears over surging food inflation.
January 12, 2011 / 22:58 IST
Australia's worst floods in decades shut down a key grains port, while the United States signaled further tightening of domestic and global supplies, heightening fears over surging food inflation.
Corn and soybean futures in Chicago jumped to 30-month highs after the US government reduced its estimate of corn and soybean production in the United States and Argentina, where hot, dry weather has begun to take a toll on crops.Estimates of Australia's wheat crop and exports were also cut, at a time when there are concerns with the US crop due to dry weather. Last year, Russia banned exports after the worst drought in a century decimated production.Forecasts for smaller US grain stocks also helped rally Chicago cattle and hog futures prices.Elsewhere, South Korea's cabinet held an emergency meeting to combat the spread of foot-and-mouth disease that has forced meat prices higher. Thailand raised interest rates, citing pressure on inflation from commodity prices.A report by the UN food agency last week showed world food prices hit a record high in December, and warned that key grains prices could rise further.Food inflation has risen to the top of the agenda for policymakers with memories still fresh of a 2008 food crisis, when soaring prices sparked riots in several countries, high inflation and in many cases deep trade deficits.Countries including China, India and Brazil are battling double-digit food inflation.The rise in food prices in fast-growing economies makes it important for monetary authorities to anchor inflation expectations, global central bankers said on Monday.Leading economies in the Group of 20 have promised action and several countries have already introduced price controls or boosted food supplies to reassure consumers.In Australia, one of the world's top four wheat exporters, the biggest floods in history forced Queensland's major grain terminal of Fisherman Island to shut down.Although Queensland is a small wheat exporter compared with other states, the shutdown highlights the setbacks to the national crop, where heavy rains have already reduced the amount of high-protein grain preferred by major markets.Wheat prices rose 47% last year, corn more than 50% and US soybeans 34%. The U.N. Food and Agricultural Organization (FAO) said in its report key grains prices could rise further.Adverse weather conditions, including drought in Russia and its Black Sea neighbours, hurt global wheat supplies, boosting prices..Wednesday's US Agriculture Department report pegged US corn stocks at the lowest in 15 years, and soybean stocks at the smallest in at least 35 years, signaling more upward pressure on world food prices. The FAO said its indexes measuring meat and sugar prices hit a record high in December while cereals, which cover the main food groups of wheat, rice and corn, were the highest since the 2008 crisis.Analysts say a 2008-like crisis is far from certain. Some said further adverse weather conditions would be needed to drive food prices much higher than current levels.Jonathan Anderson, who covers emerging markets for UBS, said global food price indexes would have to rise another 50% to deliver the same inflation impact as three years ago.While weather shocks are disrupting food supplies, there has been no repeat of the leap in energy and fertiliser prices or of the accompanying hoarding seen in 2008, Anderson said."In this environment, as long as accelerating global food inflation is assumed to be a temporary phenomenon, and as long as we're not back to a full-on food price 'disaster' a la 2008, we believe that emerging market central banks will continue to be relatively relaxed in their policy response," he said in a report.South Korea unveiled steps on Tuesday to increase food supplies as demand rises ahead of the Lunar New Year at the beginning of next month.On Wednesday, the cabinet held an emergency meeting to deal with the outbreak of foot-and-mouth disease, which sparked a sharp rise in pork and beef prices after 10 percent of the country's cattle and pigs were slaughtered to deal with the disease.Thailand's central bank raised interest rates on Wednesday by a quarter of a percentage point to 2.25%. The Bank of Thailand cited growing inflation pressure.In India, where food inflation is running at 18%, the Financial Express newspaper reported that a bill aimed at providing cheap and easily available grains for the poor will be delayed by a year. Backers of the bill say the law would protect more than 400 mn Indians.The ruling coalition government is under fire over high food prices, particularly for onions, which are widely used in India. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
