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Grain Prices to Rise
Even in an economic crisis, demand for foodstuffs remains steady. With cultivated land shrinking and consumption rising in developing countries, the price of grain is expected to rise on overseas futures markets. Wheat hit a high mark at $370 per ton on the Chicago Board of Trade in February of this year and has since sunk to $156 per ton. Wheat and sugar are especially liquid commodities and many index funds invest in them. Their withdrawal from the market as they were forced to seek free funds as the value of assets dropped caused the falling wheat prices of the last month. The 2007-2008 season also saw record high harvests in North America, Russia and Ukraine.
Grain consumption rises with population growth, which the U.S. Census Bureau and the United Nations have calculated to be 1 percent. With the deepening economic crisis, developing countries also reorient their consumption preferences from meat and soy to grain. Analysts at Unicredit Aton are predicting a rise of 5.6 percent, or 652 million tons, in grain consumption next year. Since sowing and harvest are periods of high expenditure in agriculture, banks traditionally provide supplemental funds in those periods. Now that banks are unable to do that, and the current price of grain means little profit is derived from it, less grain will be produced. The French agency Agritel predicts that the area devoted to grain production will decrease by 5 percent in 2009-2010 to 214 million hectares, close to a 35-year low. Intensity of cultivation may also be reduced.
Next year’s grain harvest may fall by 50 million tons to 627 million tons. Meanwhile, the International Grain Council and U.S. Department of Agriculture note that world grain reserves are at a 30-year low at 112 million tons. Analysts expect those factors to boost grain prices to $220-280 per ton next year. The price rise will begin next March, simultaneously with the new sowing season in the northern hemisphere. The price of wheat for July delivery is currently $158 per ton. A minimum of 60,000 rubles is required to invest in the commodities market in Russia. That is considerably less than abroad.
www.kommersant.com
All the Article in Russian as of Dec. 03, 2008
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Photo: Alexander Miridonov
