Those businesses relying on feed commodities have certainly had to cope with a series of bullish sector trends in the past two years. Increasing demand for food in rapidly growing emerging market countries and the use of corn for ethanol have been the achieve price drivers. Now, at least for the short-term, add weather concerns. Corn approached a record $8 per bushel Monday as the prospect of more rain on already-soaked Midwest farms increased the likelihood of extensive crop damage, Bloomberg News reported.
Soybeans, wheat, and rice also rose Monday at midday after the National Weather Service predicted that flooding in the Midwest will probably result in "hundreds of millions of dollars" in crop damages. Rice, a staple for about 50% of the world, rose 50 cents to $20.80 per 100 pounds. Soybeans traded up 19 cents to $15.79 per bushel.
Economist Glen Langan, whose specializations include agricultural economics, told BloggingStocks Monday the world needs a strong harvest, across the feed spectrum, from the United States and other nations. "A strong harvest would take some of the price momentum out of corn and wheat, in particular. Unfortunately, we may be headed for a sub-par harvest in the U.S. if current weather patterns persist," Langan said.
Grain prices weigh on national economies
Further, if key grain prices continue to increase at double-digit rates annually, grain commodity prices, to go along with the king of all commodity price worries -- oil -- may displace the credit crunch as the No. 1 economic problem facing the developed and developing worlds, Langan said.
In developed nations, the price increases would boost inflation and slow economic growth; in the developing world, increased payments related to food subsidies could strain these nations' budgets, with retail prices increases by governments for food stuffs, increasing the risk of renewed social unrest.
"We need strong harvests for the next four months from the U.S., Canada, Brazil and Argentina to slow these price increases, given global food consumption demand trends. If we don't get it, we could see another round of major price increases on top of already high prices," Langan said.
Longer-term, he added, new seeds, and more-weather-tolerate / disease resistant crops will help to slow the growth in grain and food prices. Arable land increases in Brazil and other regions, among other factors, will further moderate prices beginning in about 2-3 years.
A moderation in price increases 2-3 years out is hardly a cause for celebration among grocery shoppers and governments, but Langan underscored that is about the best most nations can hope for, given the bullish trends regarding food consumption around the world.
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