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Grain prices too high? They haven't been high enough

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Crop prices too high? They have not been elevated enough.

They have failed to persuade users of soybeans and, in particular, corn to cut down sufficiently their consumption.

US corn stocks fell at the start of this month to 6.53bn bushels,US Department of Agriculture data showed on Thursday. That's down 15% year on year and 170m bushels below forecasts, equivalent to production from more than 1m acres.

That might not be so bad if prices had done enough to encourage US farmers, the world's most important providers of crops for exports, to max out sowings this year.

But prices haven't hit all the right notes here either. A rise of 8.6m acres allocated to the eight major crops is a big step in the right direction in keeping up world supplies. But it is 1.2m acres short of the USDA's initial hopes, and more than 6m acres short of the recent high in sowings, 15 years ago.

Harvest prospects

Indeed, for corn, even sowings at this level would still leaves a lot down to weather if farmers are to produce enough corn to repair significantly supply pipelines.

After all, one-third of the 4m extra corn acres are expected to come in the Dakotas, which have a history of below-average yields.

For soybeans, it is difficult to see any relief, given a forecast fall in sowings to 76.6m acres. Especially since three of the states set to lose the most acres – Iowa, Nebraska and Ohio – are high yielders. Indeed, they were the top three for yields in 2009.

Sure, supplies of wheat, for which sowings are set to rise by 10%, are not looking so tight, even if a dry winter has damaged autumn-planted crops as badly as some believe. But wheat is one grain on which the world is not relying on the US so much for a big harvest.

Tricky summer ahead

What was needed for consumers tested by rising clothing, food and energy prices was a sign that the suffering had been sufficient to turn crop inventories and production decisively in their favour.

They haven't got it. In fact, crop supplies may be even tighter than the USDA stocks data implies, given the likely impact that the break in prices earlier this month had in whetting demand.

China, believed to be behind a 1.25m-tonne order of US corn unveiled last week, wasn't the only buyer to use lower prices as a buying opportunity. Meat giant Tyson on Wednesday said it had exploited the tumble to extend its corn coverage into the last quarter of the year.

As it is, buyers face an extremely tight summer for finding corn and soybeans, and will have to cross their fingers for a better time in 2011-12.

And those, such as French president Nicolas Sarkozy, who claim speculators have raised crop prices artificially high look, simply, wrong.


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