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February 23, 2012 6:29 pm
The threat of a worldwide jump in food prices has receded after farmers planted record amounts of grain in response to soaring commodity markets, the US has said.
The official government forecast may come as a relief for households struggling with bigger grocery bills, but could quickly unravel if weather in important farming regions turns harsh.
Joseph Glauber, chief economist at the US Department of Agriculture, said that record prices in late 2010 and the first half of 2011 had led to bumper production worldwide of major crops from corn to cotton. Ethanol refineries’ appetite for US corn had also levelled off, helping to buoy projections of stocks of the most important animal feed grain this year, he said.
“Where it looked like we … might be seeing another big bout of inflation, it looks at least for the time being that has moderated. That’s very, very good news, obviously, for households,” Mr Glauber said at the department’s outlook forum, the biggest annual gathering of the agribusiness sector.
At the same forum a year ago, Mr Glauber painted a more worrying picture, suggesting prices would climb as stocks dwindled. In June 2011, corn futures hit an all-time high of almost $8 a bushel. This translated into higher food costs.
The high prices enticed farmers to reap the highest tonnage to date of crops such as corn and wheat this year. Output of soyabeans, used for products from livestock feed to salad oil, is expected to fall due to dry weather that has hurt yields in Brazil.
“For an economist, it’s somewhat gratifying to watch markets and see that they naturally have followed those laws of supply and demand,” Mr Glauber said. “Certainly, the high prices that we saw last year have prompted a global production response for most products.”
The department said wholesale corn prices would fall 19 per cent and wheat would decline by almost 14 per cent after this year’s US harvest, but that soyabean prices would fall only slightly.
Yet the USDA still expects prices to remain well above the level seen in recent years. Moreover, Mr Glauber anticipated that rice prices, together with the cost of beef and poultry, would rise.
US agricultural forecasts are highly uncertain before summer crops are in the ground. Before harvest time, global stocks of corn will probably fall to just 52 days of consumption, the lowest since 1974.
Agricultural commodities prices matter beyond their effect on inflation, affecting agribusinesses from Cargill, the world’s largest trader of food raw materials, to John Deere, a big manufacturer of tractors and combines, and food producers such as Kraft.
In the US, the end of a federal tax credit and weak petrol demand has capped rising ethanol production. Some refiners are losing money.
“Slowing growth in biofuels and a return to trend yields should result in a rebound in corn stocks this year and over time it should help relieve some of the volatility that has roiled markets in the past several years,” Mr Glauber said.
Tom Vilsack, US agriculture secretary, said that ethanol had helped absorb some of the US corn farmers’ production gains in recent years.
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