Higher Food Prices On the Way

The Wall Street Journal today 8/8 reports: Food Processors Sweat Over Corn Crop p. B2

here is an excerpt: "The US corn crop is in trouble, with a blistering heat wave threatening to stunt growth and leave consumers with higher food bills and food producers with lower profits...

"The early signs are far from promising, which has helped propel corn prices back above $7 a bushel, a shift that will likely ripple though farmers, food producers, and retailers.

"The photographs of the crop right now--pored over by traders and food producers a month before harvest--have been alarming, said H. Allidina, head of commodities research at Morgan Stanley..."

Companies expected to be directly impacted include Tyson Foods, Smithfield Foods, Pilgrims Pride and others.

MAJIA HERE: The problem with high corn prices is that corn has become ubiquitous in American food and fuel. The Lost Angeles Times explains in 2008 why high corn prices could be extremely damaging to the US economy:

Corn is king -- and therefore a growing problem: Increasing dependence on the grain leaves the U.S. vulnerable to drought-induced price spikes in food and fuel. March 02, 2008 by Jerry Hirsch

http://articles.latimes.com/2008/mar/02/business/fi-corn2

"Corn is a key element of the U.S. food supply. It is what dairy cows eat to make milk and hens consume to lay eggs. It fattens cattle, hogs and chickens before slaughter. It makes soda sweet. As the building block of ethanol, it is now also a major component of auto fuel.

And that may signal trouble ahead.

Economists are cautioning that the nation's growing dependence on corn would make for a double jolt in the event of a drought across the Midwest: soaring prices not just for food but also for gasoline...

...Analysts now warn that a "corn shock" might not be far off -- and it could lead to $5 gas and $3.50 eggs as the effects reverberate across the economy.

"We are replacing price volatility from the Middle East with Midwestern weather price volatility," said Michael Swanson, a Wells Fargo & Co. vice president and agricultural economist...

...ethanol -- mostly refined from corn -- will make up about 6% of the nation's gasoline supply this year, and that's expected to rise to 10% over the next five years. The amount of ethanol used in California gasoline is expected to grow at a faster rate, reaching 10% by 2010...

...Oil companies would have to scramble to fill that sudden gap with conventional gasoline. Prices would soar for both fuels, said Philip K. Verleger Jr., an energy economist in Aspen, Colo....

...Because of the interrelationships among crops, a major shortfall in the U.S. harvest could tip global grain and soy markets into chaos. It would affect the prices of food made directly from these commodities, such as bread, pasta and tortillas, and food made indirectly, such as pork, poultry, beef, milk and eggs..."

MAJIA HERE: Rice prices are also going to go up.

Zerohedge reported yesterday on record futures prices on rice in Japan because of fears, likely to be confirmed, of radiation contamination.

http://www.zerohedge.com/news/japan-rice-futures-surge-40-trigger-circuit-breaker-concerns-fukushima-radiation-will-destroy-c

The Japanese consume a lot of rice. That means rice prices throughout Asia are prone to rising as Japan relies on other nations' rice exports.

Poor people in the developing world are going to suffer if all of these high food price projections play out as expected.