How Will the Food Supply Shortage Affect Commodities?

Demand for grain (NYSE:JJG) and corn exports from American farmers is on the rise, but concerns are mounting that supply side shortages will continue to see prices for these agricultural staple crops rise (NYSE:RJA). Tomorrow the USDA is expected to release a report that will confirm current speculation that U.S. grain reserves have experienced a steep decline in recent months. A farmers’ ability to replenish inventories is depending on fickle weather, “Needing a perfect growing season to rebuild inventories, wet weather in some regions is preventing farmers from getting the crop planted and dry weather elsewhere will pinch yields.”

The drop in reserves will not be limited to grain produce, as Bloomberg reports that unusually wet weather this year “may send global [corn] inventories to their lowest in 37 years, signaling higher costs for consumers and livestock producers.” Corn futures (NYSE:CORN) have doubled in the past year on the commodities exchange, and may top out at over $9 per bushel if supply-side concerns are not addressed in the near future. The U.S. Department of Agriculture is also expected to cut its projections for corn reserves this year by 17%, representing the lowest supply ratio since 1974.

Consumers can expect to take the brunt of the burden from the expected rise in commodity prices, as companies such as McDonalds (NYSE:MCD), and General Mills (NYSE:GIS) have already implemented price hikes in response to projected higher supply  costs.

More bad news for inflation worrywarts today as Oil (NYSE:USO) prices jumped over 2.5% today after OPEC leaders failed to reach an agreement on target production increases at a conference in Vienna. According to one meeting attendee, Saudi Arabian Oil Minister Ali Al-Naimi, “It was one of the worst meetings we’ve ever had.”

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