January 13, 2011

 

Australian deluge constricts global grain supply

 

 

Australia's worst floods in decades have closed down a key grains port, while the US signalled further narrowing of local and global supplies, worsening fears over surging food inflation.

 

Corn and soy futures in Chicago jumped to 30-month highs after the US government reduced its estimate of corn and soy production in the US 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 (Jan 10).

 

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 soy 34%. The UN 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 (Jan 12) USDA report pegged US corn stocks at the lowest in 15 years, and soy stocks at the smallest in at least 35 years, signaling more upward pressure on world food prices.