October 14, 2010

 

Volatile grain market sparks food security concern

Steps to damp volatile grain prices will take centre stage at a food security conference in Japan this weekend after a bleak harvest forecast in the US unleashed a rally in grains and renewed fears about future supplies.

 

The latest crop outlooks in key grain exporters Brazil and Argentina and ways to increase grain reserves will also get discussed at the 21-member Asia Pacific Economic Cooperation (APEC) ministerial meeting on October 16 and 17, traders and analysts said.

 

"The US forecast of a poor harvest is an alarming sign," said Kazuhiko Saito, an analyst at Tokyo-based trading house Fujitomi. "It came amid concerns that China's sizeable imports of US corn could cause prices to spike."

 

The US, the world's largest corn exporter, last Friday (Oct 8) slashed its outlook for corn supplies to the lowest level in 14 years, piling strain on already jittery global grain markets.

 

"Large price volatility has been a serious problem as that will create additional obstacles to reducing hunger," said Akio Shibata, director at Marubeni Research Institute.

 

A boost in low global grain stocks and information-sharing among countries would help avoid panic buying, Shibata said.

 

Crop outlooks in Brazil and Argentina should be also looked into as the world is now banking on wheat supplies from producers in the southern hemisphere to meet the shortfall.

 

Volatility in grain markets partly stems from prospects that population growth in emerging economies and accompanying changes in diet patterns will boost demand for grains, while weather disruption, water scarcity and a decline in arable land could squeeze supply.

 

Some analysts said two factors are of particular concern: China, which is currently mostly self-sufficient, may turn into a net importer of grains; and a greater use of biofuels as an alternative to carbon-emitting petroleum.

 

China this year made a major foray into the global corn market to satisfy brisk demand from its animal feed and processing industry after drought hit last years' harvest.

 

The US Grains Council expects China's imports are likely rising to 15 million tonnes on an annual basis by 2015, about the same as Japan's imports.

 

The US and EU's encouragement of greater use of biofuels is expected to sharply reduce corn production for food use. Meanwhile, the UN estimates that increased use of biofuels could potentially cause the biggest loss of cropland in 2050.