Commodities Prices Shoot Up On Bleak U.S. Crop Forecasts

Hot weather and low rainfall is sending grain prices higher, which will translate into higher food prices generally, says the USDA in its latest and carefully-watched World Agricultural Supply and Demand Estimates, released yesterday. Corn prices were up the 30 cent limit yesterday, to $7.18 a bushel (the record high, set in June, is $8.00).

I came across this news in the Financial Times, which cast the whole thing as good news, not for you and me, but makers of tractors and companies that trade commodities. In the U.S., food prices are already up nearly four percent over the last 12 months.

A quick look at the report shows that corn and wheat production is forecast to be down three or four percent and prices to increase about as much. Corn and wheat prices are already at fairly high levels. Soybean, canola, and sunflowerseed production are all projected lower, four or five percent, and those prices are slated to be about that much higher.

Higher prices on grains are transmitted into higher prices for beef, chicken and pork. Prices are likely to be still higher there because of lower weights on the animals, due to the drought. Similarly milk production is forecast to be down, so butter and cheese prices are to be higher.

Let me anticipate an objection from readers, as arose a couple of weeks ago -- I don't begrudge the farmers among you a higher income. Prices go up, prices go down. Some of my people were farmers and I know how hard it is to make a living at it.

The FT adds, however, that a huge wheat crop in Russia would probably limit the corn price rise: wheat and corn are both used as animal feed, so where farmers can substitute wheat they won't have to buy corn.