Corn Prices Linger at Record Highs but Wheat and Rice Wear Thin

By Jason Simpkins
Associate Editor

Flooding in the Midwest has devastated much of the region's corn crop, and caused prices to skyrocket. However, major rice and wheat producers are expected to have bumper crops this year, offering some hope that food prices could soon recede.

The price of corn for July delivery jumped Monday to an all-time high of $7.60 a bushel on the Chicago Board of Trade. It was the eighth straight day of trading in which the price hit a record high. The price has already shot up 71% this year, boosting food prices worldwide and fueling what is fast becoming a global inflation epidemic.

Fortunately, there are signs that the price of rice and wheat could recede sharply in coming months and relieve some of the inflationary pressure. In fact, the price of wheat is already on the way down having fallen roughly 50% since February. And increased plantings will yield a wheat crop 8.7% larger than that of 2007, the Food and Agriculture Organization (FAO) reported.

"This improvement in supply should, in principle, help," Hafez Ghanem, the FAO's assistant director-general, told a news conference. "But we don't expect to see prices going down to what they were before."

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The United States will produce 16% more wheat than last year, making this year's harvest the biggest since 1998, the FAO said. The European Union, on the other hand, will add 13% to its wheat crop. Global cereal output is expected to climb 3.8%.

Rice could be next in line for a price drop, as yields from Thailand, the world's largest rice exporter, could rise 29% this year. Rough rice production will rise to 8.9 million metric tons for the May-June harvest, Bloomberg News reported. Farmers increased the amount of land devoted to the rice crop by 27% to 5 million acres to take advantage of high prices this year.

Rice futures on the Chicago Board of Trade hit a record high $25.07 per 100 pounds on April 24, and are climbed 79% in the past year, according to Bloomberg. The benchmark Thai export price for 100% grade-B white rice hit a record $1,080 per metric ton on April 24, but has since fallen to $795 per metric ton.

"The market was very quiet. Most buyers are waiting for lower prices in July when Vietnam is expected to lift its ban on rice exports," one trader told Reuters.

Vietnam is also positioned for a bumper harvest, this year. Vietnam has lifted its ban on the signing of rice-export deals, but will only allow contracts for a limited quantity as it has capped exports of the grain at 3.5 million tons for the first nine months of this year.

The Philippines is already set to import 600,000 metric tons rice from Vietnam through a government-to-government agreement, Xinhua reported yesterday (Wednesday). The Philippines is the world's top rice importer but has vowed to achieve 98% self-sufficiency by 2010.

India has also curbed rice exports but the nation expects to produce a record 95.5 million tons of the grain this year, an increase of 2.5% from 2007.

"The pressure would considerably ease if India, which is about harvest a bumper 2007 secondary crop, would relax its current export curbs," said the FAO's Food Outlook report, released last month.

Only 7% of global rice production is traded internationally, which means any government intervention in the export or import markets could have a dramatic impact on rice supply and prices.

Also, speculation among investors and consumers has run rampant in recent months, adding to political and economic pressures. As the run-up in commodities price steepened in the early part of the year, driving the price of corn and wheat to all-time highs, traders on the Chicago Board of Trade dove head first into already volatile markets.

"We have enough food on this planet today to feed everyone," Adam Steiner, head of the U.N. Environment Program told the Associated Press, adding that the way that access to that food is being distorted by perceptions of future markets is distorting access to that food. "Real people and real lives are being affected by a dimension that is essentially speculative."

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