World Food prices – prospects for the short term – crystal ball gazing for early August

If the US economy needs QE3  or QE4 as a collapse in market + consumer confidence sets in – asset prices will rise, so will food prices – fuelling unrest in the developing world…

Wheat and corn rose in Chicago after President Barack Obama said U.S. lawmakers agreed to raise the federal debt limit, avoiding a possible default. Both grains climbed for a first session in three after falling 2.6 percent on July 29 on concern talks would fail to produce an accord. Though, as the House of Representative passed the first part of the settlement,
market sentiment appeared mixed with pressure on currencies like the Yen, and stock markets in Asia reacting poorly when they opened shortly after the news, though it may be in part, due to poor figures on U.S. manufacturing data as well.

Crop yields + demand sit on a finally balanced knife edge….poor weather can blow yield predictions out the water + hit prices

Elsewhere, a report by the National Drought Mitigation Centre said that some 12% of U.S. territory was seeing ‘exceptional drought’ conditions, focused mainly on the southern U.S. and southern plains. Texas officials say that five years ago the state saw losses of some $4.1bn due to a savage drought that year. David Anderson, an economist with the Texas AgriLife Extension service at Texas A&M University said “We won’t be surprised if it’s a lot bigger than that this time,” he said.

Sharply growing demand out of China means the world market can do without additional shocks that may be closer than we think

A little reported story suggested that China faces the risk of severe damage from a hurricane whose trail of destruction could encompass Shanghai and major crop producing regions, lifting the country’s need for imports of crops such as corn and soybeans. This was based on reports from forecasters at the Korea Meteorological Administration and at US-based weather service WxRisk.com, who have jointly warned that either South Korea or eastern China will be struck next weekend by a typhoon which is already blowing winds of more than 100 miles per hour.

There are fears that China may boost imports of grain to a record 6 million metric tons in the year beginning Oct. 1, to replenish stockpiles, as demand for feed grows, according to Yigu Information Consulting Ltd.  Thus, purchases by China may further drain U.S. inventories, forecast to be at the lowest level since 1996.

Ramadan – more pressure on world commodity prices? – Could this aggravate Arab world social unrest still further?

Arab unrest and high food prices are casting a shadow on the Arab world as Ramadan approaches, with prices sharply rising. Ramadan falls this year during a scorching summer, when tempers in the Arab world, already running hot, could easily boil over, especially as many complain about the continued rise in food prices and general economic malaise. Also, it is worth remembering that food prices typically spike during Ramadan, and the extravagant dinners many put on to break the daily fast could drive a deeper hole in household budgets.

Weather forecasts are also being keenly watched, as crops mature in the northern hemisphere and concerns remain that the sizzling heat in the U.S. Midwest last week, might have hurt corn and soybean yields, despite kinder weather predictions for this week.

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