On the brink of a food crisis

The worst U.S. drought in a quarter of a century is spinning global grain prices.

Global markets have once again reached the highest prices in recent years, causing food crises in vulnerable regions of the world. In an effort to protect their populations from hunger, many countries are suspending the purchase of grain, explaining their decision by sufficient reserves and using other sources of supply, hoping, in the future, that prices will come down. But their hopes may not come true, as they will all eventually return to the market at the same time.
The world's great faith in a record U.S. corn crop and an unexpected drought has caused prices to rise about 40 percent in the past three weeks. Soybeans remain at record highs; wheat is not far behind. "Production potential looked great, and that partly put potential buyers to sleep, who trusted a false sense of security. At the time, we were seriously targeting a corn price of 5 $ under perfect weather conditions, but now we're raising the bar higher without looking back," says Jefferies Bache brokerage analyst Sean McCambridge. Now, corn futures contracts for the 2012 crop are above 7$ per bushel and that's not the limit. According to Sean, importers from Europe, North Africa and the Middle East are out of regular buying mode, expecting the market to cool off. "It's a time bomb. I wouldn't be surprised if corn traded at 10$," the trader added.
There is an analogy between the current state of the market and the food crisis of a few years ago, when a drought in another grain region caused prices to skyrocket. We just need to replace the 2012 U.S. drought with the 2010 Russian crop failure.
To be continued...

Based on foreign press for ForTrader.org