July 23, 2012 / 3:33 PM / 6 years ago

WRAPUP 2-US grain prices seen easing, tempering food inflation

* Reuters poll sees grain prices retreating
    * Easing prices could temper gains in food costs
    * Still, grain prices seen historically high end-2012
    * Will 2012 be similar to 2008 food crisis?
    * Futures prices retreat amid rains, equities decline

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    By K.T. Arasu
    CHICAGO, July 23 (Reuters) - High-flying U.S. grains prices could sink as
much as 19 percent by the year-end from their drought-fueled peaks, a Reuters
poll showed, a decline that should temper expected inflation for a variety of
foods ranging from meats to cereals to cooking oil.
    The poll of nine analysts showed that prices for grains will keep climbing
over the next two months to fresh highs, then taper off after the U.S. harvest,
and as traders turn their attention to crops in the Southern Hemisphere and
preparations to plant anew in the United States for harvest in 2013.
    Prices at the year-end, however, will remain historically high, with Chicago
Board of Trade spot corn futures seen at $6.91 per bushel, the loftiest
ever for that time. But they will be off 17 percent from their current all-time
high of $8.28-3/4 set on July 20. The poll showed that corn futures are seen
peaking at $8.87 in early August.
    Investment bank Goldman Sachs on Monday raised its forecast for corn prices
to soar to a record $9 per bushel in three months, and for soybeans to hit $20
after cutting the yield estimates for both crops. It pegged wheat at $9.80.
    "The importance of the current U.S. drought for the global crop outlooks is
magnified by detrimental weather conditions in other key world production and
exporting nations in 2012," Goldman said.
    On Monday, CBOT corn, soybean and wheat prices tumbled due to forecasts for
rain in some of the parched areas of the northern U.S. Midwest and as concerns
over Europe's debt crisis sparked a selloff in equities and other commodities.
    The Reuters poll showed that CBOT soybean futures were seen ending
2012 at $15.40 per bushel, the highest ever for that time of year but off 13
percent from their record of $17.77-3/4. It showed the price peaking at $18.04
per bushel.
    Chicago wheat is forecast to end the year at $7.72 per bushel, down
19 percent from its peak of $9.52-3/4, the highest in nearly four years. The
analysts expected the price to peak at $10.01 per bushel in late August.
    Corn and soybean futures set all-time highs last week as the worst drought
in 56 years withered crops in the world's largest grains exporter, sparking
worry about a food crisis like the one in 2008, when shortages sparked riots in
30 countries.
    Ricky Volpe, research economist at the Economic Research Service of the U.S.
Department of Agriculture, said higher food prices this time around will not be
comparable to 2008.
    "None of the dynamics and indicators are approaching that for 2008," he
said, adding that the food price increases in 2008 were the highest in 20 years.
    He said major differences include much lower crude oil prices this time, and
less-expensive wheat.
    In 2008, crude oil hit an all-time high above $147 per barrel. A severe
shortage of rice in Asia also served as a factor behind the civil unrest that
    While wheat prices remain well below all-time highs above $13 per bushel set
in 2008, they have soared 55 percent in just over a month in tandem with corn
and soybeans.
    Economist Bill Lapp of Advance Economic Solutions in Omaha, Nebraska, said
the price rally has so far added about $30 billion to food costs that may be
passed on to consumers.
    "There is a cumulative $30 billion cost bubble due to the rise in prices for
corn, soybeans, soymeal and others," said Lapp, whose clients include food
companies and restaurants.
    Analysts said that while some of the higher food prices will come later this
year, the bulk of the gains could arrive in 2013 as it usually takes several
months for food companies to run down their inventories before restocking. 
    Some companies might have been caught flat-footed by the surge in grains,
the analysts said. Just a month ago, the United States was seen heading for
bumper crops after one of the mildest winters provided perfect planting
    As the United States is the largest exporter of corn, soybeans and wheat,
food inflation could also be exported to importing countries, especially in
    The U.S. drought has been more critical for soybeans, which are used to feed
livestock, produce biodiesel, make cooking oil and in some countries such as
Indonesia eaten as a protein-rich snack, because a water shortage in leading
growers Brazil and Argentina slashed global production.
    The two South American countries -- the second- and third-largest soybean
exporters -- will plant their next crop this fall and begin exporting early next
    Some analysts, however, expect any food crisis this time to be worse than in
2008, when riots helped spark the "Arab Spring" that toppled the leaders of
Tunisia, Libya and Egypt last year.
    "It could be more severe than in 2008," said Dennis Gartman, a commodities
trader and editor/publisher of The Gartman Letter.
    He said cereal makers were likely to raise prices even though "the cardboard
box containing the cereals is far more expensive than the grain."
    Abdolreza Abbassian, senior economist and grain expert at the U.N.'s Food
and Agriculture Organization, told Reuters in Milan that while rising grain
prices were a cause for concern, it was too early to call the situation a food

 (Additional reporting by Sam Nelson and Mark Weinraub; Editing by David
Gregorio and Dale Hudson)
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