FOOD PRICES ON THE RISE

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Climate Change May Cause 'Massive' Food Disruptions

Feb. 15 (Bloomberg) -- Global food supplies will face "massive disruptions" from climate change, Olam International Ltd. predicted, as Agrocorp International Pte. said corn will gain to a record, stoking food inflation and increasing hunger.

"The fact is that climate around the world is changing and that will cause massive disruptions," Sunny Verghese, chief executive officer at Olam, among the world's three biggest suppliers of rice and cotton, said in a Bloomberg Television interview today. "We're friendly to wheat, corn and soybeans and bearish on rice."

Shrinking global food supplies helped push the United Nations Food & Agriculture Organization's World Food Price Index to a record for a second month in January. As food becomes less available and more expensive, "hoarding becomes widespread," Abdolreza Abbassian, a senior economist at FAO, said Feb. 9, predicting prices of wheat and other grains are more likely to rise than decline in the next six months.

Corn futures surged 90 percent in the past year, while wheat jumped 80 percent and soybeans advanced 49 percent as the worst drought in at least half a century in Russia, flooding in Australia, excessive rainfall in Canada, and drier conditions in parts of Europe slashed harvests.

'Inflame' the Market

Corn may be the best-performing agricultural commodity, surging to a record in the first half, while wheat will advance as increased government purchases help "inflame" the market, said Vijay Iyengar, managing director of Agrocorp International, who's traded agricultural commodities since 1986.

Global warming may help lift the prices of corn, wheat and rice by at least two-thirds by 2050, a study by the International Food Policy Research Institute showed in December. "There is an increasing likelihood of a food crisis globally due to climate change," South Korean President Lee Myung Bak told his secretaries on Feb. 7, according to a statement.

Last year was the warmest on record, together with 2005 and 1998, the Geneva-based World Meteorological Organization said.

May-delivery corn, trading at $7.0575 a bushel at 6:45 p.m. Singapore time, was 12 percent below its record in 2008, when declining food supplies caused riots in 30 countries including Haiti and Egypt. May-delivery soybeans fell 0.2 percent to $14.13 a bushel, while wheat for delivery in the same month slipped 0.6 percent to $8.985 a bushel. Rough-rice for March delivery declined 2.4 percent to $15.36 per 100 pounds.

Corn Imbalance

Global corn stockpiles were forecast by the U.S. Department of Agriculture to drop at the end of this season to a four-year low, while inventories of wheat will slump 10 percent from a year ago as harvests trail behind demand for both crops. Soybean inventories will drop to a two-year low, the agency said.

"Corn is where demand is most imbalanced" against supply, Iyengar said in an interview in Singapore yesterday. "Increased purchasing by governments "tends to inflame markets," he said.

Food prices have become too high for some developing countries to buy the agricultural products they need, raising the risk of food riots, French Agriculture Minister Bruno Le Maire said earlier this month.

"We don't want too many storms, because that tends to contribute to excited decision-making," Agrocorp's Iyengar said, referring to supply problems influencing governments' import policies and purchasing volumes. "It also puts pressure on the lower strata of people in various countries. You see the poorer people tend to hurt more."

Intensified Hoarding

Protests, prompted in part by rising food prices, spread across North Africa and the Middle East in the past month, driving Tunisia's President Zine El Abidine Ben Ali into exile after 23 years in power and ending Egyptian President Hosni Mubarak's 30-year rule.

Sales and shipments of wheat by the U.S. to Egypt, the world's biggest buyer, jumped to 2.9 million tons since June 1, more than six times higher than the same period a year earlier, according to USDA figures dated Feb. 3.

Algeria bought 2.95 million tons of wheat from Dec. 16 to Jan. 26, according to crops office FranceAgriMer. That was "probably" the most the country had ever bought in a five-week period, said Xavier Rousselin, the office's head of arable crops. Loadings of French soft wheat destined for Morocco more than tripled to 1.16 million tons from 350,000 tons a year earlier, the company said.

Hoarding of agricultural products will intensify, although it will have limited impact on prices because supplies are sufficient, Goldman Sachs Group Inc. analysts including Jeffrey Currie said in January.

'Perfect Harvests'

"With Algeria, they bought 800,000 tons in one tender," Agrocorp said, referring to one in a series of wheat tenders that accelerated the purchases by the world's fourth-largest importer. "That makes the market excited," he said.

Global corn production will need to increase by 6 percent, and wheat output by between 3 to 4 percent in the 2011-2012 crop season to rebuild global stockpiles, Abbassian has said.

"You need two perfect harvests through the summer of 2012 to get stockpiles back to an acceptable level," said Jason Lejonvarn, a commodities strategist at Hermes Fund Managers Ltd., forecasting a peak of about $8 a bushel for corn. "Corn will have to stay above $7 to get acreage" in countries including Brazil, he said in Singapore yesterday.

With demand growing and stockpiles dwindling, prices will remain high "if there is any supply disruption in any part of the world," Olam's Verghese said. "We're experiencing that today in the grains complex, the cotton complex and the coffee complex."

Cotton Firm

Cotton stockpiles will plunge to the lowest since 1996, according to USDA data. Jose Sette, the executive director of the International Coffee Organization, said Feb. 11 that stockpiles of coffee held by exporting nations probably will be little changed at about 13 million bags, the lowest since the group started keeping records in the 1960s.

"Cotton will continue to remain firm until the new crop arrival starts and that is expected sometime in October," Verghese said. Futures traded at a record $1.9455 per pound in New York on Feb. 11 as exports from the U.S. gained amid tighter global supplies.

Prices may remain "around these levels, and then it will correct itself a little bit," he said, without giving forecasts.

Rough-rice production may be 700.7 million tons, or 467.3 million tons of milled grain, up about 3 million tons from a November estimate, the FAO said last week. The forecast would be a 3 percent rise from the 2009 season, it said.

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net Susan Li in Hong Kong at sli31@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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