A Tsunami of Food Inflation Stirs Shortage Fears

April 27, 2008

It is a tsunami — a wave of food inflation moving across the world. With it has come a tsunami of news stories on the subject as if the shortage of food is a surprise.A rising population, a larger middle class in Asia demanding a better diet, and a biofuel craze that uses food for fuel all pointed to higher prices for easily the past 18 months.

¬†”Everywhere you see, there is some story about food shortages and hoarding and tightness of supplies,” said Neauman Coleman, an analyst and rice broker in Brinkley, Arkansas.

Fears about tight world supplies of food led governments to hoard and ignited protests in places like Haiti. But food scares have even erupted in some unlikely places, including the United States, the world’s largest producer and exporter of food.

Sam’s Club, a unit of retail giant Wal-Mart, said on Wednesday it was capping sales of bulk bags of rice at four bags per customer per visit. The previous day, rival Costco Wholesale Corp said it had seen increased demand for items such as rice and flour as worried customers stocked up.

You know it’s gone over the top when movie stars and government officials, like Drew Barrymore or the new Secretary of Agriculture Ed Schafer, make appearances on the Chicago Board of Trade floor, the world’s benchmark for price discovery, trumpeting their food causes.

We live in interesting times. The days of cheap food seem to be over.

THE WEEK AHEAD

The tidal wave of price volatility will continue, analysts say.

U.S. traders are most concerned about the delay in planting corn, running about two to three weeks behind. Farmers are getting antsy as they watch another around of rains and snow move across the upper Midwest this weekend — keeping them sidelined a little longer. One forecaster is calling for snow on Sunday night in Chicago.

Farmers hope to their get corn planted by May 15.¬†After that point, yields start to drop off 1.5 bushels per acre per day everyday the crop goes unplanted. Granted farmers can catch up quickly given the size of today’s planting equipment, but they still need a break in the weather.

Bottomline…the latest weather forecast will impact CBOT prices as much as anything else in the week ahead.

USDA will issue its weekly crop progress report on Monday afternoon. Chicago grain traders expect USDA to report corn planting 16-18 percent complete, versus the five-year average of 31 percent by late April.

All the rain is also causing the Mississippi River, the main artery for transporting grain to export terminals at the U.S. Gulf, to flood.

For soybeans, the lack of a resolution between Argentine farmers and the government over a soy export tax will underpin nearby prices. Farmers are threatening a second strike, blocking soy transportation to processing plants and export terminals, after a 30-day truce that ends May 2. Argentina is the world’s top soymeal and soyoil exporter and third-largest in soybeans.

Insiders will be watching to see if any May options were exercised over the weekend following expiration on Friday. In particular, local traders were eyeing the $5.80 strike in corn, $8 in wheat and $23.80 in rice. If traders were assigned positions over the weekend, it could add to volatility — offsetting them in futures trade on Sunday night or Monday morning.

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