Shrinking U.S. crops pose inflation challenge for countries

Tue Aug 7, 2012 1:13am EDT
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By K.T. Arasu

CHICAGO (Reuters) - For nations like China and India fighting to tamp down inflation while spurring growth, even as the global economy faces headwinds from Europe's debt crisis, shrinking U.S. crops could be an additional headache as food prices creep higher.

Add to that, dry weather in eastern Europe dimming crop prospects in key grains exporting countries like Russia and Kazakhstan, and a less-than-stellar monsoon in India, the troubles for policy makers could escalate into major challenges.

These nations could get a heads up on the severity of the problems they might face when the U.S. Department of Agriculture on Friday unveils its supply-demand report that will feature crop estimates for the United States, the top grain exporter.

"If the USDA's corn and soybean estimates are much below trade expectations, there could be negative implications for China and their inflation rate," said veteran grains analyst Rich Feltes of RJ O'Brien in Chicago.

There are good grounds to be concerned. Chicago Board of Trade corn futures have soared more than 50 percent in the past two months and soybeans by nearly 30 percent as the worst drought in 56 years had devastated the crops.

The USDA slashed its estimate of the U.S. corn crop -- the world's largest -- by 12 percent in July and analysts polled by Reuters are expecting it to cut that by another 15 percent on Friday to 11.026 billion bushels.

That would trim the ending stocks in the United States to the smallest in 17 years, leaving the country vulnerable to any further production shocks in other parts of the world.

The analysts expect USDA to reduce its estimate of U.S. soybean production by nearly 8 percent from its July estimate of 3.050 billion bushels and they expect soybean stocks to be the smallest since 1980 at 112 million bushels.   Continued...

A drought-damaged corn field is pictured near Emery, Iowa July 27, 2012. REUTERS/Karl Plume