November 19, 2010

CBOT grain rises on UN global report

A UN report warning of global food shortages and higher prices has given US grain markets a kick overnight, pushing up December corn up US$0.15 per bushel to US$5.40, and soy up US$0.26 per bushel to US$12.31.

Both commodities had come off recent highs this week on reports that China would give higher priority to fighting inflation than importing grains.

But on Wednesday (Nov 17), the UN Food and Agriculture Organization (FAO) warned of global shortages of grains, particularly corn and wheat, and predicted increases in prices this year and next to rival the global price spike of 2008.

The UN warned that farmers will need to plant more corn in particular to makeup for short crops in Russia and the Ukraine that were hit by drought this year.

Corn and soy already had gained 60% and 40% this year on reports of the shortages but the UN report appears to have refocused the markets, at least temporarily, away from its recent fixation on China demand.

The UN report warned of higher food costs next year, mirroring a forecast earlier this fall by the USDA, who said that food prices in the US were likely to increase next year by the highest amount since the last 4-5 years.

Feeder cattle, those ready for slaughter, are trading at US$99 per hundredweight for December delivery this week. But the February contract stands at US$115 per hundredweight, a gain of US$10 per hundredweight in just the last month reflecting tight supplies in the US, higher feed costs, and rising demand.

Hogs similarly show strength in the market for next year. While the current contract for live hogs stands at US$68.50 per hundredweight, the contract for delivery next July is at US$86 per hundredweight reflecting the belief that producers will cut back on supplies in face of higher feed costs.