April 25, 2008

Dry weather may relieve soaring grain prices

While most farmers wait for rain for good harvests, analysts say dry weather may be the key to take the edge off from rising commodity and grain prices.

Pundits claim prices could increase further if a wet spring continues across the nation's midsection which delays farmers from planting crops. Supplies already are tight and worldwide demand for grain shows no sign of letting up.

Recently, inflation in basic food ingredients has slugged grocery shoppers and caused agricultural interests to complain that speculators have driven prices to unjustifiable levels.

At the Chicago Board of Trade, wheat, corn, soy and rice prices have hit another peak this year. The rice situation is the most acute; rice futures are up 122 percent in the last 12 months at the Board of Trade and foreign producers are curtailing exports.

Major grain regions China, Russia and Australia have reduced grain exports to ensure they can feed their own people and other countries are expected to follow suit. Mindful of a supply limit, shoppers are hoarding.

Other crops have been affected by surging oil prices, which has spurred demand for biofuels such as corn-based ethanol.

David Lehman, commodities director at the Board of Trade, however said prices can go down if the weather cooperates, which is now happening to wheat's winter crop.

He also noted that better grocery deals might show up in the butcher section. Livestock prices are down, he said, because the producers are paying the same price increases for feed and so are shipping herds to slaughter without delay.

When farmers should benefit from high prices, volatile markets are preventing them from locking in prices more than 90 days in advance. The issue was a primary topic in Washington D.C., during an unusual "roundtable" discussion Tuesday (April 22) hosted by the Commodity Futures Trading Commission, the federal regulator of the crop markets.

Bob Stallman, president of the American Farm Bureau Federation, said at the meeting that speculators are dominating the market and that the government should enact new restrictions on their trading.

But CFTC data show that since June 2006, the participation in the futures markets by large-scale speculative traders has remained stable.

While that issue gets debated, consumers can ponder a warning from Accuweather.com that said storm systems can push across the Plains and the upper Midwest later this week, further saturating fields that must dry out before farmers can plant corn and soy.