Uh oh. This is nothing but a repeat from 2008, when food prices rose in step with spiraling oil prices. Riots rocked the world. Here at home, we are in for even deeper stagflation, as prices for energy and food rise, while high unemployment keeps our wages flat at best. Stagflation hinders economic “growth”, keeping revenues for the city of Lex down. More need, less resources will be the reality.
Farm-commodity prices including corn will extend rallies next year driven by increased demand from emerging markets including China, the world’s most populous nation, and higher energy costs, according to Rabobank Groep NV.
There was “rampant demand” for agricultural commodities from China, and rising corn prices may drive gains in other grains, according to a report yesterday from analysts at the bank. Surging crude-oil costs, low global food stockpiles and a weakening dollar may also bolster prices, the report said.
Rabobank’s predictions add to forecasts that food costs may surge next year, potentially paving the way for a reprisal of the global crisis of 2008, when prices of advanced to records. Increased Chinese purchasing of global crops is “reshaping” some farm commodity markets, the report said.
“Corn will drive the grains complex” next year, with China importing as much as 8 million metric tons, the report said. “We look for higher energy prices in 2011 to be a catalyst for higher agricultural prices.”
Corn in Chicago has jumped 45 percent this year and traded at $6.035 a bushel today, while wheat has gained 41 percent and soybeans have rallied 27 percent. The Food & Agriculture Organization’s index of 55 food commodities rose for a fifth month in November to the highest level in more than two years.
Deutsche Bank’s Call
A lot of agricultural commodities including corn, soybeans and wheat are “still cheap” even after recent rallies and may extend gains, Deutsche Bank AG’s Michael Lewis said last month. Food prices may rise further unless global grain output climbs “significantly” next year, the FAO said in a Nov. 17 report.
“China’s corn demand for feed has now grown to represent nearly a quarter of the world’s total and we expect the robust growth to continue,” said the Rabobank report, which was compiled by Luke Chandler, Erin FitzPatrick and Keith Flury. China may become a “structural net importer” of corn, it said.
Corn imports into China may gain to a record next year and the country was working to start shipments from Argentina, the U.S. Grains Council said on Dec. 15. China may buy as much as 15 million tons of corn from overseas by 2015, according to a forecast from Shanghai JC Intelligence Co. in July.
Demand from China for more foodstuffs from overseas may match the country’s recent increase in soybean purchases, the report said. Soybean imports, which totaled 10 million tons a decade ago, may reach 57 million tons in 2010-2011, the report said, citing a forecast from the U.S. Department of Agriculture.
“China now accounts for 60 percent of global soybean imports, in addition to approximately 20 percent of world-traded soybean oil,” the report said. “Such tremendous growth is likely to be replicated in other commodities as China’s shifting consumption patterns increase demand.”