An era of cheap food may be drawing to a close

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An era of cheap food may be drawing to a close

Reuters poll: Higher grain prices will persist, spurring more global unrest

updated 1/30/2011 1:36:58 PM ET 2011-01-30T18:36:58

U.S. grain prices should stay unrelentingly high this year, according to a

Reuters poll, the latest sign that the era of cheap food has come to an end.

U.S. corn, soybeans and wheat prices -- which surged by as much has 50 percent

last year and hit their highest levels since mid-2008 -- will dip by at most 5

percent by the end of 2011, according to the poll of 16 analysts.

The forecasts suggest no quick relief for nations bedeviled by record high food

costs that have stoked civil unrest. It means any extreme weather event in a

grains-producing part of the world could send prices soaring further.

The expectations may also strengthen importers' resolve to build bigger

inventories after a year in which stocks of corn and soybeans in the United

States -- the world's top exporter -- dwindled to their lowest level in decades.

While grain prices remain below the historic highs of 2008, they could remain

stronger for longer this year as intense competition among crops for land use

and depleted grain bins make it an even greater challenge to restore

equilibrium.

" Even if we have a good year, we are not going to have the inventories we've

seen before. I really do think the time of cheap food prices is over, and that's

just it, " said analyst Mann of Traders Group Inc in Chicago.

" Everything is set to the point where supply equals demand right now. But if you

pull one thing out of it, or if you disrupt the equation in some little way or

tweak it, I think, with inventories as tight as they are, it will really have an

impact on prices. A drought, a flood, anything, " said Mann.

A series of shocks brought the grains market to the brink last year.

A summer drought in Russia led to a suspension of grain exports, rains in

Australia downgraded the quality of its wheat crop, and a lack of rain cut

Argentine corn output. China bought near-record volumes of U.S. corn, and demand

for corn-based ethanol surged.

Now prices must remain high to encourage U.S. farmers to plant more corn and

soybeans in the spring, and traders will be on tenterhooks to see whether crops

in the U.S. are enough to correct the deficit in inventories.

Poll: High prices

The average forecast of 16 grain analysts showed that Chicago Board of Trade

corn futures will end this year at $5.96 per bushel, down eight percent from

Thursday's close of $6.50-3/4 and down five percent from the end of 2010.

Corn futures posted the best gains among grains and oilseeds last year, surging

52 percent as U.S. stockpiles fell to the lowest in 15 years in the wake of

strong demand from the ethanol industry and steady exports after the Russian

drought.

Wheat futures were forecast at an average $7.93 per bushel, down 6 percent from

Thursday's close of $8.46-1/4 and virtually unchanged from the end of 2010.

Wheat futures surged 47 percent last year amid the crop damage.

Soybean futures were forecast at an average of $13.20 per bushel, down 6 percent

from Thursday's close and down 5 percent from the 2010 close. Soybean futures

rose 34 percent last year for the second straight year of increases.

Prices for corn and soybeans topped out at 2-1/2 year highs last week, while

wheat hit a 29-month high on Thursday.

Grains for the world

Another year of high grain prices could exacerbate the problem of food price

inflation.

Surging food prices have taken center stage with policy makers, especially in

commodities-dependent nations like China and India -- home to one-third of the

world's population. Both countries have raised interest rates in a bid to rein

in inflation.

Some analysts believe monetary tightening could reduce demand for commodities as

the cost of capital rises, but others say importing countries, especially China

and India, need to keep buying for consumption and reserves.

" As food inflation becomes a bigger issue in the lesser-developed countries, the

global pipeline for food commodities is expanding. The world wants to own a

little more inventory, " said grains analyst Terry Roggensack of The Hightower

Report in Chicago.

For North African countries like Algeria, the rush to import grains,

particularly in the past two weeks, has been fueled by concerns about how to

reduce populist anger over rising food costs that has led to riots.

With the stepped-up demand from North Africa and the Middle East whittling away

at global wheat stocks, there is no room for error with the winter wheat crop in

the United States that was planted last fall and will be harvested in the

summer. the same goes for the wheat crops in China -- the world's largest

grower.

" We are not in a good situation going into February and March in China and in

the U.S., so wheat is on the verge of a real scare, " Roggensack said.

Copyright 2011 Thomson Reuters.