Food costs: World and US trends as predictors of what is to come

The good news begins with the increased prices incentivized increases in plantings, or the acres planted, of the crops that are projecting the values. Wheat plantings are up in spite of the issues like bio-fuels, and conditions remain favorable for a global harvest that is projected to be 42 mmt above global use. This is according to data and interpretation of the International Grains Council. United States Department of Agriculture will issue early harvest figures probably by the time this article is published.  As stocks go up, prices soften or come down historically. This surplus can be used to rebuild stocks and soften prices. Internal U.S. Wheat Associates (a not for profit corporation representing US farmers) projects that out of the total 42 mmt surplus globally, some 31.7% will be soft wheat and the remaining 10.3% will be hard wheat. If this is realized, the price softening should be seen more with soft or cake/cookie/cracker, wheat and to some lesser degree hard or bread wheat.

Although the concerns of diversion of food to be burnt as fuel are reasonable concerns and the ethics questionable, we don’t see either a shortage of corn for use and export, or the increase in corn production limiting wheat plantings. Although corn production is up 80% in the last 6-7 years, it has not taken acreage from wheat as the price of wheat has stayed high. Corn has initially taken acreage away from soybeans but this year soy is expected to take some acreage back from corn as corn production is leveling off. It seems that the real concern of using food for fuel is the price impact of increased feed grains on meat, poultry and dairy products.

Concerning midterm projections, one serious concern with regard to further negative impact on grain prices is the potential and real increases in governmental regulations globally. Nations from Russia, Kazakhstan and Ukraine to Argentina are banning exports to protect their local markets. The unintended consequences are reducing plantings on commodities with imposed price ceilings.

Any time taxes are high or exports banned, the farmers typically respond by asking why they should plant something that they cannot sell at market price. Kazakhstan and the Ukraine have very good conditions for planning oil seeds like sunflower, and legumes, and they don’t require expensive petroleum based fertilizers. Argentina is now reporting a decline in wheat plantings in the wake of their temporary export ban on wheat. It is yet to be seen how temporary these taxes and bans will be. 

(0) Comments • Permalink • 06 05 2008

• Dan Ettling, MonkeyMedia Software
• Photos by Alexander Nitzsche

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