Stealthily, the global food price inflation crisis is re-emerging as world corn prices are driven higher by heavy rains and poor growing conditions that have seen the size of the huge US crop cut.
That will pit food processors, feedlotters and ethanol companies against each other for the reduced crop.
Corn rose to a record for a sixth day in a row on the news. It hit $US7.09 in Chicago overnight after pushing through the $US7 a bushell level for the first time on Wednesday.
Because corn is at the centre of the US grains complex in the huge Chicago futures markets, it tends to influence the prices of other grains and oilseeds.
So wheat, soybeans and rice also rose as the heavy rain and floods through the Midwest flooded farmland and cut yields.
The United States Department of Agriculture reported yesterday in its monthly World crop report that American corn production will drop 10% from last year and stocks may drop to a 13-year low before next year’s harvest.
Corn prices have surged 26% in the past two weeks, but this has been overshadowed by the sharp gyrations in oil prices. Corn is now up 83% over the past year as rising demand from China and demand for ethanol and for livestock feed in the US collide.
Wheat, rice and soybeans also reached records this year, spurring riots from Haiti to Egypt and Cameroon and restrictions on rice exports in particular.
The upward pressures eased a month ago, with wheat and rice down sharply. But as corn has crept higher in the past fortnight, wheat has been dragged higher and it jumped by more than 65 USc in trading in the US and Asia yesterday.
Sugar prices have even kicked higher again after subsiding in the past month; the price of New York sugar edged half a cent higher on Wednesday.
The news of the downgrading of the US corn crop caught some traders by surprise because the reports of floods, heavy rain and wet ground across much of the Midwest (and the upper Midwest in particular) sort of crept up on the market as oil grabbed all the attention.
The USDA said US corn output will be 11.735 billion bushels this year, compared with 12.125 billion bushels forecast in the first estimate on May 9 and 13.074 billion bushels last year
The USDA said "The 2008 corn crop is projected at 11.7 billion bushels, down 390 million from last month based on lower expected yields.
"The national average yield is projected at 148.9 bushels per acre, 5 bushels below last month, and 6 bushels below the 1990-2007 trend. This month’s reduction reflects slow planting progress, slow crop emergence, and persistent, heavy rainfall across the Corn Belt. The latest rounds of torrential rainfall are expected to reduce plant populations and nitrogen availability, particularly for corn planted after mid-May.
"Corn supplies for 2008/09 are projected 340 million bushels lower this month. Partly offsetting lower production is a 50-million-bushel increase in beginning stocks resulting from lower projected 2007/08 exports.
"Feed and residual use for 2008/09 is projected 150 million bushels lower on reduced feeding demand with higher prices, increased wheat and sorghum feeding, and lower expected residual losses with the smaller crop. Exports are lowered 100 million bushels reflecting tighter U.S. supplies and increased export competition with higher foreign production.
"Ending stocks for 2008/09 are projected at 673 million bushels, down 90 million from last month, and 760 million below the 2007/08 forecast. If realized, 2008/09 ending stocks would be the lowest since 1995/96.
"The 2008/09 marketing-year average farm price for corn is projected 30 cents higher on both ends of the range at $5.30 to $6.30 per bushel. Price forecasts for sorghum, barley, and oats are all raised for 2008/09. Price forecasts for 2007/08 corn and sorghum are also raised reflecting higher expected summer prices.
"The 2008/09 marketing-year average farm price is projected at $6.75 to $8.25 per bushel, up 15 cents on both ends of the range. Wheat prices are expected to remain supported by early season demand and higher corn prices.
"The 9.9-million tonne cut in U.S. corn production is only partly offset by increased corn production in China and the Philippines, and increased corn and barley production in Russia and Ukraine.
“Foreign corn production is projected 7.6 million tons higher this month and 19.5 million tons above the current 2007/08 forecast. China corn production for 2008/09 is raised to 153.0 million tons, up 3.0 million from last month, reflecting a higher yield consistent with recently released 2007/08 estimates."
The drop in production will mean food processors, feed lotters, exporters and ethanol producers will face a scramble this year to secure enough corn: and that means the likelihood of a price surge as the year goes on will increase, unless there’s a sharp improvement in the weather.
Already there’s a knock on effect being felt from the grain pressures.
Japan is the world’s biggest corn importer and it’s now suggesting a second increase in the floor prices for domestic meat for a second time this year (and boost subsidies to livestock farmers) because of the rise in corn prices.
There’s been a 60% increase in food prices since the beginning of last year.
The pressure from higher food prices is not going away, despite what the Pollyanna’s and optimists might think, especially amongst nervous American politicians looking for someone to blame, other themselves, in this election year.
