Welcome Guest | |
Submit Your Sourcing Requirement
Advanced Search Filtersdown arrow
left border  
left border  
Last Updated:[01-03-2011 01:15:14 EDT] Zoom in Zoom out Back to Tradenews

Farm Boom Is Leading to Growing Concerns

tradenews The cure for higher commodity prices is usually higher commodity prices.

The global clamor for corn, wheat, soybeans and other crops has been a stroke of good fortune for the agricultural industry. The U.S. Department of Agriculture projects total cash receipts, or income, will jump about 9% this year to a record $341 billion, and agricultural exports will hit a record, too. Economists project U.S. nonfarm wages, by contrast, to rise just 3%.

Te strength and speed of the surge in commodity prices has turned some of the celebration across the farm belt into concern about a bubble. Above, farm worker harvests organic zucchini in Wellington, Colo.
Higher cash receipts are helping lift economic activity across the nation's farm belt. The Institute for Supply Management's Chicago regional manufacturing index, which releases February results on Monday, has been on fire lately. Last month, it surged to a seasonally adjusted level of 68.8, the highest in more than two decades (levels above 50 indicate expansion). That came as the employment component jumped to its highest since 1984 and the new-orders index was at its highest since 1983.

Lately, however, the strength and speed of the surge in commodity prices has turned some of the celebration across the farm belt into concern.

"History has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble," Kansas City Federal Reserve President Thomas Hoenig cautioned in congressional testimony this month.

The worry is that a price spike fueled by speculation or temporarily short supplies will sow the seeds of its own demise. Investors got a glimpse of that last week, as some oil prices surged well above $100 per barrel on Middle East unrest—and grain prices tanked. Previously, oil and agricultural prices had moved higher in tandem. The breakdown suggests that is becoming unsustainable because such prices are starting to undercut global demand.

But the price reversal may be what the farm industry needs: a price rise in one commodity checking the rapid growth of another. Last week's agricultural-price swoon helped blow some of the froth off the market. That, plus weaker economic growth prospects thanks to the spike in oil prices, should alleviate some of the upward pressure on crop prices without being serious enough to spur a collapse.

Still, food stockpiles remain historically tight, and that will keep upward pressure on prices even if the next harvest is bountiful. Any global supply disruption could push them even higher—heightening the risk that today's windfall becomes tomorrow's collapse.

What do you feel about this Trade News?
Feel free to write COMMENTS
*Your Email Address:
*Your Message:
Please refresh the screen if you
can't read the following text
*Enter above security code : 

Delicious.com Digg.com Facebook.com Google.com/bookmarks Yahoo! Bookmarks reddit.com