Friday, August 6, 2010

Ambrose Evans-Pritchard: "Agflation fears as Russia halts all grain exports"; Albert Edwards: "This is more Deflationary than it Looks"

There is no shortage of wheat. U.S. stockpiles are at two decade highs. There may be more going on here than meets the eye.
From the Telegraph:

"This is very serious," said Abdolreza Abbassanian, chief grain economist at the UN Food and Agriculture Organization. "It's a desperate situation because it has caught everybody off guard. We're not facing the situation of two years ago but there is a risk of destabilising panic."
The shortage may trigger a bout of "agflation", posing a quandary for central banks. Professor Charles Goodhart from the London School of Economics fears that rising food prices will add 0.5pc to Britain's sticky inflation, already testing market tolerance.

...Mr Putin pressured Kazhakstan and Belarus to impose similar curbs as the worst drought in a century threatens to drag into late August. "It is unprecedented to ask neighbouring countries to do the same," said Mr Abbassanian.

Ukraine insists that exports are safe, but analysts fear it may follow suit. The Black Sea belt and Eurasia's Steppes produce a quarter of global wheat exports. The saving grace is that stocks are 187m tonnes, against 124m in 2008.

Corn futures rose 5.8pc, oats rose 4pc, and rice rose 2.8pc on the news. "Food markets are linked. This is going to put further strains on corn. Animal feed prices will go up, affecting meat," said Mr Abbassanian.
. Commodity spikes can be inflationary but also deflationary, depending on context. Central banks in Europe and the US misjudged events two years ago, mistaking oil and food rises for the start of a 1970s price spiral. In fact, it drained demand from economies already tipping into recession.

"This is more deflationary than it looks," said Albert Edwards from Societe Generale. "The risk is that central banks will hold off from further easing that I think is needed, increasing the risk of a hard-landing."...MORE

Two days ago Bloomberg reported:
Russia Should Ban Grain Exports Amid Drought, Glencore Unit Says
Glencore is one of the worlds largest grain traders. They may have profited by the up-move caused by the export ban.