After the release of government reports indicating that crop such as soybean, wheat, and corn are getting smaller, the price of these grains reached their highest level since 2008. In addition to the smaller crops being produced, an increasing demand for food is also contributing to the rising prices. Worldwide grain inventories are quickly diminishing. According to the United States Department of Agriculture, the supply of grain is expected to drop 2.2% in 2011. To contribute to the problem, many areas such as Ukraine, Europe, United States, and Russia are experiencing a drought, reducing output.
The price of grain such as corn affects the price of all food because this grain is a key ingredient to feed livestock. The increasing cost to feed livestock will ultimately be passed down to the customer. The corn has increased nearly 90% in the past year and wheat is up above 80% and soybeans prices increase 50%. Simply stated, the supply of grains being produced is not keeping up with global demand.
According to a report released by the United Nations, the price of food will continue to rise around 2011. So far this month, corn futures for March have risen 4% while soybeans futures for March increased 1.3% and rice is up 2.1%.
Companies such as Tyson Foods will be faced with the increasing cost to feed their livestock. These companies are expected to post smaller gains this year due to the increase.
Today, the GSCI agriculture Index reached 567.7. This index keeps track of eight commodities including cocoa, sugar, coffee, and cotton.
Author: John Zinsky
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