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Americans hoard food as industry seeks regs
April 23,
2008
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By
Patrice Hill - Farmers and food executives
appealed fruitlessly to federal officials yesterday for regulatory steps to
limit speculative buying that is helping to drive food prices higher. Meanwhile,
some Americans are stocking up on staples such as rice, flour and oil in
anticipation of high prices and shortages spreading from overseas.
Their pleas did not find a sympathetic audience at the Commodity Futures Trading
Commission (CFTC), where regulators said high prices are mostly the result of
soaring world demand for grains combined with high fuel prices and
drought-induced shortages in many countries.
The regulatory clash came amid evidence that a rash of headlines in recent weeks
about food riots around the world has prompted some in the United States to
stock up on staples.
Costco and other grocery stores in California reported a run on rice, which has
forced them to set limits on how many sacks of rice each customer can buy.
Filipinos in Canada are scooping up all the rice they can find and shipping it
to relatives in the Philippines, which is suffering a severe shortage that is
leaving many people hungry.
While farmers here and abroad generally are benefiting from the high prices,
even they have been burned by a tidal wave of investors and speculators pouring
into the futures markets for corn, wheat, rice and other commodities and who are
driving up prices in a way that makes it difficult for farmers to run their
businesses.
"Something is wrong," said National Farmers Union President Tom Buis, adding
that the CFTC's refusal to rein in speculators will force farmers and consumers
to take their case to Congress.
"It may warrant congressional intervention," he said. "The public is all too
aware of the recent credit crisis on Wall Street. We don't want a lack of
oversight and regulation to lead to a similar crisis in rural America."
Food economists testifying at a daylong hearing of the commission said the
doubling of rice and wheat prices in the past year is a result of strong income
growth in China, India and other Asian countries, where people entering the
middle class are buying more food and eating more meat. Farm animals consume a
substantial share of the world's grain.
U.S. wheat stocks are at the lowest levels in 60 years because worldwide
consumption of wheat has exceeded production in six of the past eight years,
said U.S. Agriculture Department chief economist Gerald Bange. Adding to tight
supplies was the back-to-back failure of two years of wheat crops caused by
drought in Australia, a major wheat exporter, he said.
In addition, the diversion of one-third of the U.S. corn crop into making
ethanol for vehicles has increased prices for corn and other staples such as
soybeans and cotton as more acreage is set aside for ethanol production.
Farmers also have raised prices because they have been hard hit by spiraling
energy costs, which not only raised the price of diesel fuel to records of over
$4 a gallon but drove up the cost of nitrogen fertilizer, which is made from
natural gas.
"Commodity prices across the board are at levels not experienced in many of our
lifetimes," said CFTC Chairman Walter Lukken. "These price levels, along with
record energy costs, have put a strain on consumers as well as many producers
and commercial participants that utilize the futures markets to manage risks."
The upswing in prices has been exaggerated by the massive influx of investors
and speculators seeking to profit from rising prices for corn, wheat, oil, gold
and other commodities. Big Wall Street firms and hedge funds have taken huge
positions in futures markets that once were dominated by relatively small
operators such as farmers and grain-elevator owners.
Small investors, who see fast-rising commodities as good hedges against
inflation and a falling dollar, also are getting a piece of the action by
investing in index funds that are tied to commodity prices.
"During such turbulent times, it is tempting to shoot first and ask questions
later," Mr. Lukken said, but he contended the commission should be "cautious"
about doing anything to curb speculation. He and other regulators argued that
speculators add volume and liquidity to the markets, which makes them operate
more efficiently and helps farmers and other players.
Commissioner Michael V. Dunn said the soaring demand for food and fuel worldwide
might be leading to permanently higher food prices, both domestically and
abroad.
"We may already be working under or fast approaching a new paradigm of higher
agricultural prices," he said. "There is not a silver bullet or single solution
to address the problems we are currently facing."
FARM TRADE
Federal market regulators say the soaring price of most commodities over the
past year reflects increased demand rather than investor speculation.
Rice 122%
Wheat* 95
Soybeans 83
Crude oil 82
Corn 66
Gasoline 41
Gold 37
Sugar 30
Coffee 24
Milk 5
Live cattle -7
Lumber -14
* On the Chicago Board of Trade
Source: Commodity Futures Trading Commission
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