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World commodities

July 30, 2012


Grain: WORLD markets are not yet facing a crisis of the kind seen in 2007-08 when high prices sparked riots in some poorer countries, although soaring grain prices fuelled by an intense US drought are a cause of concern, the UN’s food agency said.

US corn prices have surged more than 55 percent in five weeks as crops continued to wilt under the worst drought in US Midwest since 1956, stoking fears of food shortages, and little respite is in prospect. The UN’s Food and Agriculture Organisation (FAO) expected world coarse grain supplies to tighten in the current season due to corn problems in the drought-stricken United States.

The US Agriculture Department forecast that food prices would now outpace other consumer costs through 2013 as drought destroys crops and erodes supplies. The USDA now sees food prices rising between 2.5 percent and 3.5 per cent in 2012 and another 3-4 percent in 2013. Food inflation was 3.7 per cent last year but only 0.8 per cent in 2010. Two-thirds of the United States is now in mild or extreme drought.

US crops are suffering from the worst drought in more than 50 years, which is raising worries about the world’s largest food exporter’s ability to meet the needs of food processors, livestock producers and ethanol makers. The lack of rain was also drying up waterways and slowing river shipments of commodities to export ports on the Gulf of Mexico.

Export prices of corn (maize) and wheat jumped some 20 per cent in the first three weeks of July compared to their June level, the FAO said in its price update last week. That is likely to lead to a rebound in international food prices in July after three months of falls.

Food prices will race ahead faster than prices of other goods in the US this year and next, due to the worst drought in more than a half century, the government forecast.

Food prices rose 3.7 per cent in 2011, and American consumers may pay 3.5 per cent more at the grocery store this year, with higher prices for meat, poultry and fruit, as the drought gripping the US farm belt drives up crop prices.

Food prices will rise far more rapidly than the overall US inflation rate, according to USDA, a turnabout from the usual pattern.

The US inflation rate is estimated for two per cent this year and 1.9 per cent in 2013. Corn and soybeans have hit record highs on concerns the drought will slash yields for grain that is already in tight supply globally.

The moderate drought in parts of eastern Nebraska, northern Illinois and much of the top corn and soybean state Iowa was downgraded to a severe drought in the past week, and forecasts showed little relief in sight.

Prices of both corn and soybeans soared to all-time highs recently, with corn climbing more than 50 per cent in the past four weeks alone due to the worsening drought, squeezing ethanol and livestock producer margins and chilling export demand.

More than 70 per cent of the nine-state Midwest was in some stage of drought in the week ended July 17, up from 63 per cent the prior week. The Midwest produces about 75 per cent of the corn and soybeans grown in the US, and half of that region was in severe to exceptional drought, up from about a third of the region a week earlier.


ON July 23, gold rose nearly two per cent, outperforming equities for the third day in a row as renewed talk of US and European monetary stimulus boosted the precious metal’s appeal to investors seeking an inflation hedge. Bullion was poised for its biggest daily rise in a month on speculation that the European Central Bank will create new money to fund rescue operations for troubled euro zone countries.

Gold prices seesawed early, then reversed losses as EU officials said Greece probably will not be able to pay its debts, making further restructuring necessary.

Bullion’s gains were limited, and gold futures slightly lower as the euro fell against the US dollar. Europe’s private sector looked set for a prolonged slump after surveys showed the downturn that began in the euro zone’s small economies was now entrenched in Germany and France.

Spot gold was up 1.9 per cent at $1,609.26 an ounce on July 23, having hit a near three-week high at $1,609.91 earlier in the session. US gold futures for August delivery were up $32.20 an ounce at $1,608.40, with trading volume on track to be the strongest in over a month.

Gold has held in a $75 range in July, its narrowest monthly spread since April. Weak seasonal buying in top bullion consumers such as India and China, waning inflows into gold-backed exchange-traded funds and euro zone debt jitters have limited price gains.

The metal has dropped toward or briefly below $1,570 an ounce several times last week but managed to hold each time. Gold has been moving in a trading range between $1,527 and $1,655 in the past three months.

Russia’s central bank recently raised its gold reserves by 6.2 metric tons (6.8 tons) to 836.3 metric tons (921.9 tons) in June.

Gold in the past few months has lost its appeal to assets perceived safer by investors, such as the dollar and US Treasuries. Its fortunes now hinged on whether the US central bank embarks on another round of quantitative easing, dubbed as QE3, which would raise inflation outlook and attract investors to buy gold.

Bullion rose more than two per cent so far this year, leading the precious metals complex, but was outpaced by a 4-percent gain in the dollar index.

In the London market, gold prices climbed to three-week highs above $1,620 an ounce on July 26 after European Central Bank President said the central bank was ready to do whatever it takes to preserve the euro, boosting the single currency versus the dollar. Spot gold was up 1 per cent at $1,619.50 an ounce, having earlier touched a high at $1,621.41, while US gold futures for August delivery were up $10.40 an ounce at $1,618.50.


ON July 25, oil dropped for the first time in three days in New York on concern that rising stockpiles signal faltering demand in the US, the world’s biggest crude consumer.

Futures slid as much as 0.7 per cent, erasing a 0.5 per cent gain a day earlier. Crude inventories climbed by 2.7 million barrels a fortnight back, the first increase in five weeks, data from the Energy Department showed. Supplies were forecast to decline one million barrels, according to a Bloomberg News survey.

Crude for September delivery fell as much as 59 cents to $88.38 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.60. The contract on July 25 rose 47 cents to $88.97, the highest close since July 20. Prices are 10 per cent lower this year.

Brent oil for September settlement on the London-based ICE Futures Europe exchange slid as much as 59 cents, or 0.6 per cent, to $103.79 a barrel. The European benchmark crude was at a $15.39 premium to New York contracts. The spread closed at $15.41 on July 25, the widest in seven weeks.

Gasoline stockpiles rose 4.1 million barrels in the week ended July 20 to 210 million, the highest in three months, the Energy Department reported. Supplies were forecast to drop one million barrels, according to the median estimate of 11 analysts surveyed by Bloomberg. The increase followed a 50 per cent jump in product imports from a week ago to 2.6 million barrels a day.

Distillate inventories, a category that includes heating oil and diesel, climbed 1.7 million barrels to 125 million, according to the Energy Department. They were forecast to gain 1.4 million barrels, the survey showed.

Oil prices were lower in Asia on July 25 as euro zone fears and a sharp spike in US crude inventories weighed on markets. New York’s main contract, light sweet crude for delivery in September, dipped 35 cents to $88.62 a barrel, while Brent North Sea crude for September delivery fell 39 cents to $103.99.

Oil futures rose for third straight day on July 26, after a pledge by the European Central Bank to protect the euro zone eased some worries about the region’s debt crisis. A drop in US jobless-benefit claims for last week also supported crude’s advance and with the ECB comments overshadowed worries about slowing global growth and the euro zone’s troubles.

In London, September Brent crude settled at $105.26 a barrel, gaining 88 cents, after hitting a session high of $106.18. US September crude closed at $89.39, rising 42 cents, after having gained earlier to a session high of $90.47.