The why of food prices – irritation for one, war for another

This post tracks news factors affecting grain and meat prices through the 2011 drought hampered growing season.
Remember, food like petroleum prices are gloabal. A 5%-10% price hike at the local Walmart is an irritation with some minimal inconvenience for us. For  the Moslem-arab countries across the North African cresent, who have been faced with higher food prices, those increased prices have meant a increasingly sparce meal for family members-hence the continuing revolutions. The articles below show there will be continued ‘food stress’ in prices, meaning more irritation for us and more violence from those less well off.
The following  articles start earlier in the season and proceed down to the most recent: March 23, July 19 & ca. Aug 11 and Aug 26. Mr Larry.
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4.  Worst Texas Drought in 44 Years Damaging Wheat Crop, Reducing Cattle Herds
Mar 23, 2011, Bloomberg.com, By Whitney McFerron and Elizabeth Campbell
http://www.bloomberg.com/news/2011-03-24/worst-texas-drought-in-44-years-eroding-wheat-beef-supply-as-food-rallies.html
Wheat futures in Chicago are up 50 percent in the past year, after drought in Russia and floods in Australia hurt output and sent global food prices surging. [Global wheat supplies already under pressure, now US crop harvest in question-Mr Larry]
March 21 (Bloomberg) — Hussein Allidina, head of commodities research at Morgan Stanley, talks about the outlook for oil and wheat prices.
The worst Texas drought in 44 years is damaging the state’s wheat crop and forcing ranchers to reduce cattle herds, as rising demand for U.S. food sends grain and meat prices higher.
Texas, the biggest U.S. cattle producer and second-largest winter-wheat grower, got just 4.7 inches of rain on average in the five months through February, the least for the period since 1967, State Climatologist John Nielsen- Gammon said. More than half the wheat fields and pastures were rated in poor or very poor condition on March 20.
Dry conditions extending to Oklahoma, Kansas and Coloradomay cut crop yields in the U.S., the world’s largest exporter, as too much moisture threatens fields in North Dakota and in Canada. Wheat futures in Chicago are up 50 percent in the past year, after drought in Russia and floods in Australia hurt output and sent global food prices surging. Wholesale beef reached a record this week, and the U.S. cattle herd in January was the smallest since 1958.

“We’re probably already seeing some damage, but in the next couple of weeks, we’ll surely go downhill major if we don’t get some rain,” said David Cleavinger, who is irrigating 75 percent of his 1,000 acres (405 hectares) of wheat in Wildorado, Texas. “With the prices we’re seeing, we’re trying to hold on, but there’s nothing that takes the place of a rainstorm.” Cleavinger, 53, has a 3,500-acre farm that includes corn and cotton.

Below-Normal Rains
Parts of Texas, Oklahoma, Kansas and Colorado had less than 25 percent of normal precipitation in the past 30 days, National Weather Service data show. The region may get some help from storms beginning March 26, which may drop about a half an inch of rain, said Joel Widenor, a meteorologist at the Commodity Weather Group LLC in Bethesda, Maryland.

“In a lot of places, there’s very little moisture in the ground,” said Nielsen-Gammon, the state climatologist who also is a professor of atmospheric sciences at Texas A&M Universityin College Station. Low subsoil moisture “will make us very susceptible to drought this summer if we have extended patches of dry weather,” he said.
Wheat prices on the Kansas City Board of Trade, which track the hard-red winter variety grown in the southern Great Plains, have surged 71 percent during the past year. Futures for May delivery closed yesterday at $8.30 a bushel.
Prices may climb to $10 or $12 by August if the dry conditions persist in the southern Great Plains and if other growing areas of the world endure adverse weather the way they did last year, said Kim Anderson, an agricultural economist at Oklahoma State University in Stillwater.

Reduced Crop Yield
Crop yields in the U.S. this year may be comparable to 2007, when dry weather trimmed winter-wheat output to 41.7 bushels an acre, Anderson said. Since 2000, national yields have averaged 43.8 bushels, according to U.S. Department of Agriculture data.
The USDA estimated last month that the nation’s production may fall 5.8 percent from a year earlier to 2.08 billion bushels, as dry weather spurs farmers to abandon some crops.
“Each day we don’t get rain, our potential yield goes down,” Anderson said. “If things turn perfect, I think we could have an average crop, but I’m talking about perfect from here on out. The odds of that are pretty slim.”
Prices reached a record $13.49 on the Chicago Board of Trade and $13.95 in Kansas City in February 2008, when food shortages sparked riots from Haiti to Egypt. Unrest this year toppled leaders in Egypt, the world’s largest wheat importer, and Tunisia. Chicago futures advanced to a 29-month high on Feb. 14 as countries in the Middle East and Africa boosted stockpiles.

Cattle Outlook
Texas, Kansas, Oklahoma and Colorado produced 716.6 million bushels of wheat last year, about 32 percent of the total U.S. crop, USDA data show. Those four states had 27.35 million head of beef and dairy cattle as of Jan. 1, or 30 percent of the total nationwide.

Ranchers are selling cattle to feedlots earlier than usual because there’s little grass for them to eat, said Bill Hyman, the executive director of the 8,000-member Independent Cattlemen’s Association of Texas, based in Lockhart. The state will have a smaller herd later this year, said Hyman, a rancher in Gonzales, Texas. [Hence a glut of packaged beef at the store, a shortage on the feedlots, then a shortage at the store with much higher prices.-Mr Larry]

The herd “is probably overall decreasing because of the drought,” Hyman said. “The number of cattle will probably continue to decrease until we see rain” and signs that there is a sufficient profit incentive to expand herds, he said.

Meat Prices
Cattle futures jumped 23 percent in the past year to $1.1335 a pound yesterday on the Chicago Mercantile Exchange, after touching a record $1.18 on March 9. Wholesale-beef prices are up 17 percent in the past year, touching $1.8905 a pound on March 22, the highest since at least January 2004, when USDA began its current price-tracking method. U.S. retail-beef prices were 9.4 percent higher in February than a year earlier, the USDA said last week.

The drought “is not allowing us to increase supplies when the market’s asking us to,” said Brent Skaggs, a commodity broker at Price Futures Group in Amarillo, Texas. “It’s been dry for a number of years. We haven’t really had a wet year to be able to increase our herd size.”

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3.  Hyper-Heat Wave In U.S. Corn Belt Threatens Food Supply…
July 19, 2011, LAROUCHE P.A.C.
http://www.larouchepac.com/node/18810
“July 18 (LPAC)—Continental weather extremes now include a hyper-heat wave in the U.S. corn belt, during the pollinating phase of the grain, which can cut yields at a time when flooding and drought have already hurt crop prospects earlier this Spring. The outcome is guaranteed to harm the food supply, as long as Obama stays in office, perpetrating bio-fuels, general economic destruction, and support of bailout-driven commodity speculation and hyperinflation.

At present, some 17 East Central states have temperatures over 100 F. at a time that corn is tasseling. The improved genetics of today’s seeds give a crop that can tolerate arid weather much better than in the past, but hot, dry, and windy conditions can interfere with the pollen sticking to the corn silks. It’s iffy, say farmers. When the pollination fails, the ears don’t fill out; cobs end up with fewer few kernels.

The Department of Agriculture’s Crop Progress report out today, showed surveys that corn conditions in the top 18 producing states continue to sink. What little corn there is in Texas, is in the worst condition of all, with 65% of the crop rated in “very poor” to “poor” condition.

Moreover, the national corn supply is very short from past seasons. Usually, there might be 50 to 60 days worth of corn on hand (on the farm, in commercial storage, etc.), to carry over from one crop season to the next harvest. But this Summer, there may be as little as 24 days worth of corn reserves as carryover until the harvest starts in September. Ethanol continues to gobble up corn at record rates. More corn is now going to bio-fuel than to U.S. animal feed.

The livestock-meat chain is breaking down, under the strain of high prices, weather extremes, and the Obama policy of don’t-touch-the-“markets.” Beef herd liquidation is extensive in Texas, and many ranchers, up in age, are giving up altogether, as the situation under Obama seems hopeless.

Dairy operations are whacked by high fodder prices and shortages. The price dairymen are receiving for their milk is below their costs of maintaining the herds. In California, the biggest milk-producing state, 250 large, independent dairies shut in the last three years. Livestock feed prices of all kinds, alfalfa hay, silage, corn, barley and wheat, have doubled in the last 18 months. Hay that was $125-$150 a ton, is now $250-$300 a ton. Hay production is down in such places as Montana, from the flooding impact.

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2.  Market Trends Commentary for August 2011

ca 11 August 2011, Grain Farmers of Ontario, by Philip Shaw, B.Sc.(Agr.) M.Sc.
http://www.gfo.ca/Marketing/MarketTrendsforCorn.aspx
It has been a long hot summer in the US Corn Belt. As July grew older and August dawned much of the US Corn Belt was under excruciating heat as the dreaded “dome of doom” ridged across much of North American corn country. Much of this happened during the critical pollination period for the US corn crop. As of August 8th, the US corn crop was rated 60% good to excellent compared to 69% last month. For a corn market, which needed an excellent supply this year just to maintain critical ending stocks, this script is not favorable. As we continue into August and September the corn market will surely be fixated on the deteriorating US corn crop.The 1st official big clue that the US corn crop growing in the field was suspect came in the August 11 USDA supply and demand report. The USDA shocked the market by reducing US corn yield to 153 bushels per acre down 2 bushels an acre below the average trade estimate and almost 6 bushels below their own July estimate. The USDA also maintained corn planted acreage at 92.28 million acres but they reduced harvested acreage down to 84.39 million acres reflecting a 500,000-acre drop from their earlier estimate. This put production of corn for 2011/12 at 12.91 billion bushels, significantly below the 13.470 billion bushel July USDA  estimate…. [That’a about a 4% decrease in yield per acre from the already low July estimate, not even counting a 1/2 million acres that weren’t planted planted. Mr Larry]
The Bottom Line
The great truth surrounding US corn production in 2011 was that we needed a big crop just to keep up with demand throughout this year and beyond. With the weather problems experienced in the spring causing delayed planting and with the tremendous heat, which built into the Corn Belt in July,
it is entirely obvious that the US corn crop has been compromised. The USDA report on August 11 was the 1st salvo in telling us how much. With the corn stocks to use ratio at 5.4%, as we move into fall there will not be enough corn to satisfy demand once again. That is unless the market continues to ration demand or there is some sudden improvement in corn prospects. In short, corn supply in 2011 is missing its mark.
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1.  Pro Farmer sees U.S. corn yield below USDA’s
Fri Aug 26, Reuters, By Karl Plume and Mark Weinraub
http://af.reuters.com/article/commoditiesNews/idAFN1E77P14720110826
* Pro Farmer: US corn yield 147.9 bpa; crop 12.484 bln bu
* Corn yield, crop estimate down from USDA forecasts
* Pro Farmer: US soy yield 41.8 bpa, crop at 3.083 bln bu
* Pro Farmer’s soy f’cast tops USDA; plants disease-free”CHICAGO, Aug 26 (Reuters) – The U.S. corn crop is shrinking after being damaged by hot weather, hail, and wind, crop scouts concluded this week, a development that analysts say threatens to push up prices for food, feed, and fuel.
Leaders of an annual week-long Midwest tour corn and soybean fields in the U.S. grain belt found the corn yield to be well below the U.S. Department of Agriculture’s latestforecast. However, yield prospects for soybeans were brighter.
Farm newsletter Pro Farmer, which organized the tour that was attended by farmers, agronomists and a large number of participants from the hedge fund industry, pegged this year’s corn yield at 147.9 bushels per acre. That compares with USDA’s August forecast of 153 bushels.
Pro Farmer estimated U.S. 2011 corn production at 12.484 billion bushels, below USDA’s forecast of 12.914 billion, but still potentially the third-largest in U.S. history. [Less 430,000,000 bushels! Mr Larry]
Yet USDA predicts demand for corn by the livestock, ethanol and export sectors would leave the smallest U.S. stockpile in 16 years by next summer. If Pro Farmer’s crop estimate is correct, U.S. corn stocks could be even smaller.
“The end-game of this is that livestock feeders and ethanol makers are going to slow down their use of corn,” said Don Roose, president of U.S. Commodities in West Des Moines, Iowa.
High corn prices already have cattle and poultry producers losing money, said Jim Robb, agricultural economist at Livestock Marketing Information Center. The chicken industry is already on pace for a 7 percent drop in production this year as the industry has reduced the number of eggs for broiler
production.
“If these (corn) numbers do materialize, we will see further erosion in egg sets, and it will go deeper into 2012 than we anticipated just a few weeks ago,” Robb said…”
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