Your Economy (No Politics)

[Bullwinkle]

High wheat prices carry large fallout
By JOHN MINER, SUN MEDIA
Fri, February 15, 2008


You might not have noticed, and normally might not care. But something has happened to wheat -- and it will take money out of your wallet in more ways than you'd expect.

What's happened is a price explosion that's pushed wheat to levels on world commodity exchanges that weren't even imagined a few weeks ago.

Corn and soybeans have also soared to record highs.

That means hundreds of millions more dollars will flow into Ontario's farm belt.

But you can also expect to feel the fallout not only at the grocery store.

You might see it in higher mortgage and credit card rates as the inflationary pressures boomerang through the economy.

"We are going to have higher interest rates, undoubtedly," said Donald Coxe, Chicago-based global portfolio strategist for BMO Financial Group.

You might see it in higher mortgage and credit card rates as the inflationary pressures boomerang through the economy.

"We are going to have higher interest rates, undoubtedly," said Donald Coxe, Chicago-based global portfolio strategist for BMO Financial Group.

"What it means for people in Canada is they will have to start spending a lot more money on food, year in, year out, for years to come," Coxe said.

The fallout will be felt in the grocery store aisle, said Ian Skaith, a University of Western Ontario economist.

"Bread prices will jump. I don't think they will go to $10 a loaf, but you will have fairly substantial increases," he said.

Unlike other price jumps in the past that were triggered by short-lived crop disasters, this one is different, Coxe said.

World grain production has actually risen, not dropped, but it is being outstripped by rising demand prompted by hundreds of millions of Asians switching from a diet of rice to three square meals a day.

And those people aren't about to go back to their old diets, Coxe said.

"The old World War One song was, 'how are you going to keep them down on the farm after they have seen Paris?' The answer was, those who could, stayed in the cities when they came back (from the war).

"After you have given up three bowls of rice a day for three square meals a day, you have to be pretty poor before you go back," he said.

The rise in grain prices has also been pushed by fuel ethanol production, with about 20 per cent of the massive U.S. crop now going for fuel, not food production.

For Ontario's productive farm belt, the soaring commodity prices are a mixed blessing.

For grain and oilseed farmers, their net income is forecast by Agriculture Canada to climb to an average of $76,093 this year from $54,186 last year. But for farmers who must buy the higher-priced grain for livestock, the news is bad -- pushing net incomes into negative territory.

"It is bad news for livestock producers . . . and it is bad news for bakers," said Coxe.

The higher food prices mean central bankers around the world will have less room to cut interest rates, despite a slowdown in the U.S. economy.

Skaith said the food inflation may make it more likely there will be a U.S. recession.

"We might dodge the bullet here simply because we have been able to prop ourselves up with the sales of resources," he said of Canada.

Ontarians, who enjoy some of the world's lowest food prices, can easily afford to pay more, Skaith said, but higher prices will have serious consequences in poorer countries.

"These kinds of things are very dangerous to the well being of those kinds of people in the world," he said.

http://lfpress.ca/newsstand/News/Local/2008/02/15/4848308-sun.html