Corn, rice surge as global food tensions mount

Business Materials 23 April 2008 08:56 (UTC +04:00)

With global tensions over food supplies mounting, prices of world staples rice and corn surged on Tuesday amid strong demand and concerns over slow planting of the new U.S. corn crop. ( Reuters )

Meanwhile, the Asian Development Bank warned Asian countries against export controls, and the Inter-American Development Bank said the food-versus-fuel debate had changed the way it evaluates financing of biofuel projects that could siphon off staples like corn or soybeans.

Even in the United States, the world's breadbasket, a leading retailer reported signs of growing concern about rising food costs and dwindling supplies.

James Sinegal, chief executive officer of Costco Wholesale Corp, a U.S. warehouse club selling food to consumers and businesses, told Reuters on Tuesday the retailer had seen a spike in demand for items like rice and flour.

Sinegal said some Costco store managers may have taken "precipitous action," by putting limits on sales of certain items. But he said if the retailer runs out of these items, they are usually back in stock the next day.

"We don't want to create a panic situation," he said.

American bakers also are dealing with tight supplies. Rye flour stocks have been depleted and by June or July there will be no more U.S. rye flour to purchase, said Lee Sanders, senior vice president for government relations and public affairs at the American Bakers Association.

"Those that are purchasing it now are having to purchase it from Germany and the Netherlands, and that's very concerning," Sanders said.

She cited high demand for rye flour, used to make rye bread, and less acreage devoted to rye grain than in the past.

Amid scarce global supplies of rice and soaring demand, rice on the Chicago Board of Trade rose more than 2 percent to the maximum allowed in one day, as investors poured more money into food and fuel-based commodities.

With poorer nations struggling to find supplies, the Asian Development Bank criticized rice export bans, saying governments should instead use fiscal measures to help the poor.

"Banning of exports is no different from hoarding at a national level," Rajat Nag, the ADB's managing director general, told reporters at Singapore's Foreign Correspondents Association.

The price of rice from Thailand, the world's No. 1 exporter, has more than doubled this year. The benchmark Thai 100 percent B grade white rice was quoted at a historic high at $950 a metric ton this week RICE/ASIA1, up from $383 earlier this year.

Corn futures also rose as wet weather slowed the pace of American corn planting. The U.S. Department of Agriculture said American farmers had planted only 4 percent of the corn crop, well below the average seeding rates of nearly 20 percent.

Chicago corn for May delivery jumped 14 cents per bushel to $5.94 per bushel.

"Corn is purely up on the planting progress report of only 4 percent - the last time we saw that was 1993, and that was a flood year," said Terry Reilly, analyst for Citigroup.

Many farmers were not able to plant corn in 1993, because of excessive rainfall and flooding in major crop areas adjoining the Mississippi River. It is not likely that will happen this season, but the current wet weather and forecasts for more rain are beginning to worry the corn market.

In Brazil, Inter-American Development Bank senior advisor Nathaniel Jackson said the bank was concerned about diversion of staple foods to biofuels and would not fund projects to produce ethanol from corn.

While the bank remained interested in biofuels made from soy and sugar cane, it preferred to finance plants like jatropha, which are non-edible and require no arable land, he said.

In Argentina, talks between the government and farm leaders grew more tense, raising expectations in financial markets that farmers resume a strike over a tax hike on soy exports. Soy futures at the Chicago Board of Trade closed up, partly on perceptions that the truce in Argentina could break.