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Americans hoard food as industry seeks regs

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  • Greg Cannon
    http://www.washingtontimes.com/apps/pbcs.dll/article?AID=/20080423/BUSINESS/868303815/1001 Americans hoard food as industry seeks regs By Patrice Hill April
    Message 1 of 1 , Apr 23, 2008
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      http://www.washingtontimes.com/apps/pbcs.dll/article?AID=/20080423/BUSINESS/868303815/1001

      Americans hoard food as industry seeks regs

      By Patrice Hill
      April 23, 2008


      A farmer harvests his corn crop near Morris, Ill.

      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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