As Farm Belt rain woes deepen, G-8 warns on food, oil costs
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From your grocery bill to their ears: Finance ministers of the Group of 8 wealthy nations, meeting in Osaka, Japan, on Saturday, declared that soaring food and energy costs had become the world’s biggest economic challenge -- apparently eclipsing the credit crisis in importance.
‘Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and may increase global inflationary pressure,’ the ministers said in a statement after their gathering.
The finance chiefs, including Treasury Secretary Henry M. Paulson Jr., are meeting ahead of the July 7-9 summit of G-8 heads of state in Hokkaido, Japan. The G-8 comprises the U.S., Britain, Canada, France, Germany, Italy, Japan and Russia.
Just what their recognition of the obvious in commodity prices will mean in terms of a policy response, if any, isn’t clear. Bloomberg reported that the G-8 planned to press oil producers to boost output.
The New York Times reported on its website late Friday that Saudi Arabia would raise its output by 500,000 barrels a day in July, to 10 million barrels.
Oil prices pulled back on Friday as the dollar continued to strengthen, a relationship I explain here. Near-term oil futures in New York slipped $1.88 to $134.86 a barrel. The price was down 2.6% from the record closing high reached a week earlier -- offering a ray of hope (although every other pullback in recent weeks has been a head fake).
Even if oil retreats further, however, the upward pressure on grain and soybean prices may not abate soon, given the devastating flooding in the U.S. Farm Belt.
Corn futures in Chicago rocketed to a record high of $7.31 a bushel on Friday, up 22 cents for the day and 80 cents (12%) for the week.
Soybeans also reached a record, at $15.60 a bushel, up 23.5 cents for the day and $1.03 for the week. Wheat futures rose 31 cents to $8.82 a bushel, resuming their climb after tumbling in March and April amid projections of a bumper crop this year.
The strength in grain prices more than offset oil’s decline for the day within the Reuters/CRB index of 19 major commodities. The index closed at a new high of 445.87, boosting its year-to-date gain to 24.3%.
Bloomberg reports that ‘as much as 12 inches of rain fell in the Midwest this week, and some fields had five times the normal amount of precipitation since the end of May,’ rotting crops.
Grain prices already have become a serious source of inflation at the grocery store. The flooding threatens to make the situation worse.
The cost of cereal and bakery products within the U.S. consumer price index jumped 1.7% in May from April and was up 10.5% over the last year, more than twice the rate of inflation in general, the government reported on Friday.