Global food prices seem to have ameliorated across the board as plentiful harvests in most sectors have apparently reassured investors. Corn, wheat and soy prices have descended substantially from their peaks in March. The exception to this rule is the rice market, which is waiting for the fall harvest before projections can be clearly made. Continuing government restrictions on trade movements of rice in South Asia and uncertainties about the U.S. harvest are likely behind this price surge. But it appears unlikely at this point that prices will return to the lows of the past several years. While the extreme spikes felt through 2008 might have eased for now, rising global wealth and population has put pressure on food stocks. Furthermore, the ability of countries to expand their production levels is limited — particularly in the case of rice — and the infrastructural adjustments necessary for revamping the global agriculture industry can take time. We do not yet understand how commodities will be affected by the global credit tightening, or by an uneasy investment market in the wake of the ongoing U.S. financial crisis. (click image to enlarge) As always with food markets, shortages or high prices threaten poor countries the most. Though some countries have enough domestic production to weather shifts within food markets, and others have the financial ability to offset high prices, much of the world remains vulnerable to the global market. Unlike many products, food is not something that populations can do without. From Mexico to Egypt, the world has witnessed the potential for civic unrest that erupts when populations grow hungry — and the threat this poses to government stability.

Rice

Rice is the one commodity that appears to be suffering from an unabated price increase. Uncertainty in the rice market across the board is responsible for higher prices, particularly among countries that are highly dependent on the crop, as rice growers have restricted their exports. India, for instance, extended its ban on exports of rice, wheat and pulses through April 2009. There has also been a great deal of upward pressure on prices due to the effects of hurricanes Ike and Gustav, which delayed harvests in the southern United States. There is the potential for a decline in the overall U.S. rice harvest, depending on how quickly recovery can be made. Flooding in Thailand also threatens harvests there and has affected about 2 percent of rice cropland. The upside to a tight rice market is that rice planting across the board in India, Thailand and Vietnam — all major rice producers — has led to hopes of higher future yields. India could be in a position to lift the export ban if harvests improve significantly.

Wheat

News in the wheat market continues to look up as prices fall. India, the world’s third-largest producer of wheat (after the European Union and China) recently revised its estimate for wheat production from 78.4 million to 78.5 million tons of wheat for the upcoming harvest. Most Indian wheat is used for domestic consumption, and although the country produces massive quantities of the grain, it remains a net importer by a small margin. The promising news from India has been slightly tempered by poor wheat harvests, due primarily to weather, in Iran, Australia, the United Kingdom and Argentina. Both the United Kingdom and Argentina expect conditions (weather in the former and politics in the latter) to impact future and current harvests. Australia is expecting a 5 percent decline in its wheat harvest, leaving it well above yields from the previous two drought-affected years, but slightly lower than record production levels in the 2004/2005 harvest.

Soy

Soy prices have dipped along with wheat and corn, despite lowered prospects for U.S. soy production due to dry August weather. The U.S. harvest projection has been trimmed to 2.93 billion bushels from an earlier 2008 estimate of 2.97 billion bushels. In Argentina, relaxed soybean export taxes, combined with a reduction in corn and wheat plantings, have led to increased exports and higher projected plantings of soybeans. In neighboring Brazil, soybean planting is also on the rise. In Paraguay and Uruguay, however, governments are considering restricting the amount of land made available for soybeans, citing environmental concerns.

Corn

The United States is the main player in the corn market, and U.S. harvest projections have declined slightly on poor weather. A wet spring pushed planting back, and a wet summer has delayed the harvest. This combination of factors puts the crop at risk of frost damage if the weather turns sour. The overall projection of the United States Department of Agriculture is that the harvest will be commensurate with last year’s; however, weather conditions and a late harvest have markets nervous.