Futures Industry News
South American drought attributed to La Nina hurts crops
Dec 30, 2010 09:06 AM
The east coast of the United States may be blanketed in snow, but in corn, wheat and soyabean fields of Argentina, Brazil and Uruguay, the weather is scorching. A prolonged absence of rain is raising fears that harvests in these key agricultural nations will fall short of expectations, putting further pressure on a global commodity market already strained by Russian, Australian and Pakistani weather conditions.
The price of different grain futures are at their highest levels since the beginning of the 2008 financial crisis, with corn contracts up more than 50 percent in 2010 and soybeans up over 30 percent.
On Tuesday, corn futures for March 2011 delivery were down by 2 and 1/4 cents to 621 and 3/4 cents per bushel. March 2011 soybean futures rose 3/4 cent to $13.77 and 3/4 per bushel, while wheat futures slipped 8 and 1/2 cents to 790 and 3/4 cents per bushel.
Furthermore, futures for some other agricultural products have been buoyed, as hog and cattle farmers anticipate more-expensive feed as the price of corn rises. Live cattle futures were up 0.375 cents to $1.08625 per pound on the Chicago Mercantile Exchange.
"Some farmers haven't had enough rain to put in their second soybean crops and are seeing very poor development of their corn crops," Martin Lorenzo, a subcontractor working in the worst-affected area north of Buenos Aires, Argentina, told the Wall Street Journal.
According to figures reported by the New York financial daily, corn production in the South American nation will fall from 55 million metric tons last year to just 48 million metric tons this year. Quotas on exported corn may also fall.
The tightening supply may also lead to a spiral of prices as investors eye an opportunity to jump in on a booming commodity trade. However, futures investors and hedge funds have largely been cleared of accusations that they helped stimulate the global food crisis that wracked the globe in 2007 and 2008, financial markets.
Reports have generally suggested that the main cause of rapidly rising prices was the redirection of food to fuel and the simple gap between supply and demand.
"We think the upcoming year will parallel early 2007 and 2008 when capital was readily flowing to commodities," Richard Feltes, an agricultural commodities analyst with RJ O'Brien, told the Financial Times this week.
Weather analysts believe the hot weather in the Argentine corn-growing regions will continue through the next week. The more it cuts into this critical pollination season, the consultants say, the worse the consequences will be.
Another source of bullish momentum for investors and trepidation for consumers is the rising volatility of crude oil futures. Bloomberg News reported Wednesday that implied volatility for at-the-money oil options rose more than 25 percent in that day's trading.
Rising oil futures will make key inputs for agricultural industries and individual farmers pricier; and volatility will make it harder for those growers to hedge their exposure on the financial markets.
Overall, it looks like 2011 is going to a pricier year for food: the United Nations Food and Agriculture Organisation's food price index rose above 200 points last month. That's the first time it's broken that level since the global food crisis.
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