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demand for grain is straining us supply

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    Breaking Rural News : GRAINS AND CROPPING

    Demand for grain is straining US supply
    25 February 2008

    With global demand for grain and oilseeds at record levels and the US dollar in a weak state, foreign buyers are outbidding domestic buyers for American grain, putting further strain on high commodity prices.
    However, according to Chris Hurt, a Purdue University agricultural economist in the US, the higher commodity prices may be good for croppers, but there are some worrisome downsides.

    "Food consumers worldwide are going to have to pay more," Mr Hurt says.

    "We ended 2007 with our monthly inflation rate on food nearly 5pc higher.

    "I think we'll see times in 2008 where the food inflation rate might be as much as 6pc."

    Mr Hurt also says the US is likely to have food security discussions in 2008 about whether it should allow the foreign sector to buy its food.

    Is food a strategic item that we need to keep in our country?

    The 2007 wheat crop is nearly sold out; domestic soybean stocks are close to falling below a 20-day supply, and with increasing demand corn stocks could soon be in a similar situation.

    "The last time we had this kind of uncertainty on food supplies was the early 1970s when the former Soviet Union became a major buyer of wheat in the United States," Hurt says.

    "In the fall of 1972 they were such aggressive buyers that they essentially bought the pantry out of our available wheat supplies."

    Soybeans were also very scarce, so in 1973 the President and Congress put an embargo on foreign soybean shipments to give the country a chance to replenish the supply.

    Hurt doesn't expect an embargo, but says prices will have to keep going up to slow buying down.

    Cash prices for wheat, soybeans and corn are all significantly higher, but despite the higher prices, wheat exports are 32pc higher than one year ago, 33pc of the US soybean crop will be shipped out of the country and corn exports this year are on pace to break the 29-year record of 2.4 billion bushels.

    "We've seen the relationship of the US dollar to foreign currencies change substantially in the last few years," Hurt says.

    "The European euro has increased in value relative to the US dollar by 40pc.

    "What that means is that with the same number of euros, the Europeans can buy 40pc more in the United States than they would have been able to buy three or four years ago."

    To foreign buyers using their own currencies, these prices are not as high as they seem in the US.

    Hurt says it may take another month of price increases for cut backs to happen, with soybeans possibly topping $15.

    "It turns out food is a security issue for every country of the world," Hurt says.

    "World agriculture has been so productive in the past 60 years that general food shortages have been rare.

    "With this long period of abundant food supplies, most of the world's consumers in developed countries have forgotten food's strategic nature.

    "Given the world's appetite for basic crops, the hope for 2008 is for favorable yields throughout the globe that will give consumers and crop producers more time to adjust to this new high-demand era."

    SOURCE: FarmProgress.

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