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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (22584)	8/12/2002 10:14:27 PM
From: EL KABONG!!!	Read Replies (2) \| Respond to of 74559

Oops... Get ready to dig a little deeper into your wallets... Anyone want to wager whether or not restaurants will eventually be affected by higher supply costs??? online.wsj.com Drought to Sharply Reduce U.S. Grain, Soybean Crops By SCOTT KILMAN Staff Reporter of THE WALL STREET JOURNAL CHICAGO -- A rapidly spreading Midwest drought forced the U.S. Department of Agriculture to slash its harvest forecasts by an unexpectedly large amount, rocking markets and signaling higher food costs next year for consumers. The revisions are the biggest since the droughts of the 1980s. USDA economists in Washington Monday cut their one-month-old harvest forecast of the nation's most valuable crop, corn, by a staggering 9.2%, or 904 million bushels -- an amount roughly equal to the annual production of Indiana. Grain analysts were expecting a downward revision, but only of 8%, and markets reacted to the potential tightening of supply by driving futures prices higher. The agency said it now expects U.S. farmers to harvest 8.89 billion bushels, down 7% from last year, and the smallest crop since 1995, which is when corn prices last exploded. The government also cut its one-month-old estimate of America's No. 2 crop, soybeans, by 8.1%. Based on farmer surveys, the government said it expects farmers to harvest 2.63 billion bushels, which would be the smallest crop since 1996. Grain analysts had been expecting the government to announce a revised forecast of 2.7 billion bushels for the soybean harvest. The cuts were steeper than expected by grain traders, triggering one of the wildest days in several years at the Chicago Board of Trade. The soybean contract for September delivery ended the session at $5.8175 a bushel, up 27 cents a bushel. The corn contract for December delivery jumped 10.75 cents a bushel to settle at $2.7225 a bushel. The drought is proving to be a shock to the U.S. food industry, lulled by five years of bumper crops in the U.S. and South America that kept the cost of ingredients low. A big new danger facing food manufacturers is that crop reserves -- the nation's buffer against shortages -- are shrinking back to the uncomfortably low levels of the mid-1990s, when commodity prices gyrated wildly. "We got too used to record production in the United States and South America," said Michael J. Swanson, agricultural economist at Wells Fargo & Co., the banking giant. For consumers, the drought will mean higher grocery bills next year. John M. Urbanchuk, an economist at AUS Consultants in Moorestown, N.J., Monday raised his 2003 food-inflation forecast to 3%, a move he had weighed for weeks. Before the Western drought spread into the Midwest in June, Mr. Urbanchuk had expected the government's food Consumer Price Index to climb about 2% in 2003. Consumers will find the biggest hit is at the meat counter, where retail beef prices are expected to jump by double-digit percentages in 2003 from 2002. Many pastures across states such as Colorado and Nebraska are too dry to support cattle, forcing ranchers to liquidate their herds. While a glut of red meat is currently benefiting consumers, the culling will create shortages next year. Mr. Swanson of Wells Fargo said he expects retail food prices to climb between 3% and 4% next year, compared with the 1.7% to 2.5% rise he expects to see this year in U.S. food prices. Last year, U.S. food prices climbed 3.1%. For many farmers, soaring grain prices also have an adverse effect. Higher prices are shrinking farmers' eligibility for federal subsidies, which are designed to guarantee farmers a minimum price for their crops. On top of this, some farmers in the hardest-hit states, such as Nebraska, have little to sell, no matter the price. Some farmer organizations are beginning to lobby Congress for disaster aid, creating a political dilemma for farm-state legislators, who crafted the $118 billion, six-year farm bill signed by President Bush in May. Some legislators are worried that critics of the new farm bill, which has the potential to keep subsidy payments at historically high levels most years, would use a disaster-aid request to reopen debate on subsidies. Write to Scott Kilman at scott.kilman@wsj.com Updated August 13, 2002 KJC