Global grain surplus may sow trouble

 

 

Two years after the global food crisis peaked, grain shortages are turning into surpluses that could create their own problems.

 

Some traders and economists are speculating that if the US and world economies do not heat up soon, surpluses could turn into price-depressing gluts. While cheap grain is good news for consumers and livestock producers, excessive supplies increase a government's cost for farm subsidies and tend to ignite trade fights between the big farming powers.

 

This tension is growing partly because many of the farmers in the US Midwest who were plagued by rainy growing seasons in recent years are having few problems so far this year.

 

In some northern Texas towns, the unfolding wheat harvest is so big that farmers delivering grain to local elevators in recent weeks have had to wait all day in long lines of trucks. Some elevators are so full that wheat is being stored in cotton warehouses.

 

This is a big change from most of the last decade, when farmers' inability to keep up with expanding global demand for grain set the stage for what became known as the food crisis of 2007 and 2008.

 

World grain stocks - what's left by the time new harvests can replenish supplies - shrank as the growing middle-class in emerging nations such as China demanded more meat from livestock fattened on grain. Industrialised nations, stung by soaring oil prices, were increasing support for fuels made from crops. In the US, the ethanol industry began consuming one-third of the nation's biggest crop, corn.

 

Grain prices skyrocketed as some panicked government disrupted trade by husbanding domestic supplies, increasing the numbers of hungry people around the world by millions and fuelling street protests and riots. It took a global recession to cool grain prices in late 2008.

 

Grain traders in Chicago expect US farmers to produce record-large corn and soy crops for the second straight year. Farmers in Brazil and Argentina are wrapping up record-large soy harvests.

 

With world grain production this year expected to exceed demand for a third consecutive year, many grain traders and farm economists are beginning to debate the prospects for two starkly different outlooks.

 

If an economic recovery does not gather steam soon, says one group, price-depressing grain gluts could materialise in a few years, dragging down farmers' profits and chilling farmers' demand for everything from tractors to genetically modified seed.