[Infowarrior] - Americans hoard food as industry seeks regs

[Richard Forno]

Article published Apr 23, 2008

Americans hoard food as industry seeks regs
http://www.washingtontimes.com/apps/pbcs.dll/article?AID=/20080423/BUSINESS/
868303815/1001&template=printart

April 23, 2008

By Patrice Hill - 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."