The United Nations’ Food and Agriculture Organization reported that world food prices rose 2.2 percent in February to a new record high and could rise further still if drought continues to decimate China’s wheat harvest. The reasons for high prices: drought in Russia and Argentina, floods in Canada and Pakistan, export bans, and panic buying and hoarding. These supply disruptions have led agricultural economists to ask, “If the world can’t properly feed 7 billion people today, how will it feed 9 billion in 2050?” In fact, the FAO estimates food output will have to rise 70 percent by 2050 to keep pace with population growth. 


One of our biggest price-production problems is self-inflicted. Unrealistic biofuels targets are expensive to subsidize, environmentally damaging, distort commodity markets and are driving millions into poverty and starvation. The Economist recently reported that Brazil, Japan, Indonesia and the European Union say biofuels must supply 10 percent of their energy demands by 2020. China’s target for that time frame is 5 percent. The FAO estimates it will take 10 percent of the world’s grain crops to meet all countries’ energy targets. If that were to happen, food price increases are estimated to be in the 15- to 40-percent range. 


America’s ethanol policy is perhaps the biggest offender. The United States aspires to meet 30 percent of its transportation energy needs with biofuels by 2030. In February the Department of Agriculture raised its corn-use-for-ethanol projection to 4.95 billion bushels, or about 40 percent of the total U.S. 2010-11 corn harvest. If all the American corn that goes into ethanol were instead used as food, global edible corn supplies would increase by an estimated 12 to 14 percent.


In 2010 U.S. ethanol producers hit a “blend wall,” or the point where Americans just weren’t driving enough miles on E10, a 10 percent ethanol-to-gasoline blend to use up all the ethanol being made. So now we are shipping excess ethanol out of the country. U.S. ethanol exports tripled to 350 million gallons in 2010 from 113 million in 2009. Higher prices for crude oil and a weaker U.S. dollar will help to further increase ethanol exports in 2011.


In a February press conference, Agriculture secretary Tom Vilsack conveyed the Obama administration’s ethanol policy, saying, “I’m not concerned about it. … I think there is going to be enough corn for food, for feed, for fuel and for export opportunities.”


Sen. Chuck Grassley, R-Iowa, meanwhile, makes the ridiculous claim that ethanol opposition is just a justification for food manufacturers to raise prices. But considering that any successful presidential bid needs a good start in the Iowa caucuses, supporting these damaging ethanol policies makes perfect sense – at least politically.


Between our ethanol mandates and the Federal Reserve’s “monetary easing” policy, we’ve helped trigger global grain inflation that could end up starving tens of millions in third-world countries.



Beef — February’s USDA cattle report showed 11.58 million head on feedlots, up 5.6 percent from a year ago. But the increase came entirely from feeders in the lightest weight classes – 700 pounds and 600 pounds. That’s because poor winter grazing conditions sent a large number of calves to feedlots early, and now the pipeline is empty. Ample supplies of cattle in the first quarter will drop sharply in the second quarter and be very tight by the fourth. Beef output is forecast to drop 1.5 percent in 2011. That’s after last year, in which beef imports were 13 percent below 2009 levels. Supplies of lean trimmings from Australia were down 28 percent, helping to support sky-high ground beef prices. Cattle futures in early March were record high at $114 per hundredweight. Forward contracts through 2012 are trading in the $114-$120 range. Expect record-high beef prices, with peaks ahead of the “big three” grilling holidays — Memorial Day, Father’s Day and the Fourth of July.


Dairy — Block cheese, which was $1.40 in November, hit $2 per pound March 2. Domestic fundamentals don’t support these prices levels. January milk output was up 2.3 percent from a year earlier, and cheese inventories were up 7 percent. But global prices are setting a floor under the U.S. market. U.S. dairy exports jumped 39 percent in 2010. December cheese exports were record high, 63 percent above a year ago. Cheese prices will likely dip this spring, but don’t hold your breath waiting. Butter prices globally are much higher than in the United States, but with demand kicking in for the Easter and Passover holidays, butter markets at $2.11 could actually be headed seasonally higher. The one silver lining is that milk output and cow numbers continue to increase modestly. If feed prices were to abate even slightly, we could see a lot more milk in the months ahead.


Grain — The USDA once again reduced both U.S. and world corn ending stocks for 2010-11. Global demand continues to grow despite multiyear price highs. China, formerly a net corn exporter, may have to import as much as 9 million metric tons this year. Corn futures at $7.29 per bushel in early March are now up 124 percent since mid-year 2010. Lack of snow cover exposed America’s hard red winter wheat crop to “winter kill” from subzero temperatures. A good winter crop is critical as the United States is now seen as the last remaining global source for high-grade milling wheat due to poor crops in Russia, Australia and Canada. The potential loss of China’s winter crop would be a global “game changer.” Chicago wheat was $7.90 per bushel, up 85 percent over the past nine months. Hard winter wheat at $9.08 is 98 percent above June 2010 levels. It is likely exports will keep a floor under grain prices and prevent them from falling much in 2011.


Pork — Pork output for 2011 is forecast 0.4 percent higher than 2010. This year pork exports are forecast to hit record highs, up 11 percent on top of a 3 percent increase in 2010. China imported 156.6 million pounds of U.S. pork in 2010, almost triple its purchases in 2009. Now sales to Korea are exploding due to an outbreak of foot-and-mouth disease there. U.S. hog prices are forecast to average $59.50 per hundredweight for 2011, which would eclipse the high of $58.78 set in 1982. Lean hog futures that started 2010 at $65.85 per hundredweight finished the year up 19.7 percent at $78.85, and they have since jumped to the high $80s. Ham prices look to peak a few cents high — in the mid-80-cent-per-pound range — before Easter, roughly a dime higher than last year. Pork bellies are at $1.30, or about 40 cents above year-ago levels, and are probably headed into the $1.40s this spring. 


Poultry — High feed costs are taking their toll. For 2011, broiler output is forecast just 1 percent higher than 2010, with gains in the first half of the year eventually giving way to second-half declines. Broiler exports are forecast to decline for the consecutive year, as trade opportunities with Russia are constrained by lower quotas and competition with exporters such as Brazil. The USDA is forecasting broiler prices to average $82.50 in 2011, similar to 2010’s $82.90.

Price Watch:

• In February the USDA raised its corn-use-for-ethanol projection to 4.95 billion bushels, or about 40 percent of the total U.S. 2010-11 corn harvest.

• Corn futures at $7.29 per bushel in early March are now up 124 percent since mid-2010.

• Poor wheat crops in Russia, Australia and Canada are putting pressure on the U.S. crop, driving prices for Chicago wheat and hard winter wheat up 85 percent and 98 percent, respectively, in the last nine months.

• Increased exports likely will prevent prices from falling this year.


John T. Baron is president of Market Vision Inc. in Fairfield, N.J., and can be reached for comment at jbarone@mktvsn.com.