Aug 10 - The worst U.S. drought in more than half a century is fanning fear grocery prices are headed for a spike, tough times are ahead for some of the biggest agri-business companies, and prompting calls for the U.S. to relax ethanol production. Jill Bennett reports.
The worst drought in more than half a century threatens 75 percent of the corn and soybean crops in the U.S. - with larger losses than expected. The news is sending corn prices to record highs with far reaching consequences. Sal Gilbertie, CIO of Teucrium Trading: SOUNDBITE: SAL GILBERTIE, CIO, TEUCRIUM TRADING (ENGLISH) SAYING: "In terms of feeding animals which is corn's number one or number two use and in terms of ethanol, meaning gasoline, its number one or number two use that has an effect. And remember all paper is held together by starch which comes from corn, and many sweeteners are corn based, and many polymers are corn based. That safety seal around your pain killer comes from corn polymer. So little tiny bits around the economy are going to be affected because the corn price should stay elevated through this crop year because you have to wait an entire year to plant more corn to get more corn." The drought will send grocery prices higher in a matter of weeks, according to Min Tang-Varner, Securities Analyst at Morningstar: SOUNDBITE: MIN TANG-VARNER, SECURITIES ANALYST, MORNINGSTAR (ENGLISH) SAYING: "I think you probably will start to see price prices start rising from smaller animal products that you are producing mostly because you know from the time that they are grown to the time they are at the market is a lot less in time duration. So you will probably see that in eggs or chicken products and then the last thing you will probably see is beef prices rise you know maybe 6 months from now." The higher corn and soybean prices are already hitting the bottom line of major food companies including Cargill, Bunge and Archer Daniels Midland. Tang-Varner expects ADM to post weak earnings for the next two quarters. SOUNDBITE: MIN TANG-VARNER, SECURITIES ANALYST, MORNINGSTAR (ENGLISH) SAYING: "On one hand they are seeing very high feed cost stock prices, on the other hand they don't see higher prices on end products. They are going to be shutting down or idling their capacity and in this case because of the high feed costs that they have they are generating very poor earnings." Global pressure on the U.S. to stop using corn to make ethanol got more attention on Friday. A top United Nations official called for a temporary suspension- to prevent a food crisis. China took one more step, announcing plans to release corn and rice from state reserves. Jill Bennett, Reuters