While weakening industrial commodity prices seem to be reflecting a general slowdown in industrial economies, one historic corner of the commodity markets--that devoted to wheat, corn, and other grains--has been on a roll. Wheat prices, for example, recently rocketed to new 15-year highs, and corn prices are now closing in on 12-year highs. And prices for such grains as oats, barley, and rye have at least doubled over the past year.
The proximate cause of the action is a dramatic tightening of supply in the face of growing world demand. Looming behind the market and enhancing its bullish tone is the mammoth specter of China, which has shifted from a grain exporter to a substantial importer within the space of a single year.
Having survived numerous crop scares over the past decade without much damage, big grain users tend to believe that output can be expanded in time to avoid critical shortages. But market analyst Bill Gary of Commodity Information Systems Inc. in Oklahoma City claims they are in for a rude awakening that could make recent price hikes look like the calm before the storm. "We are heading," he says, "into a grain shortage of historic proportions."
To be sure, the world has enjoyed cheap plentiful supplies of grain for 15 years, as technological advances and government subsidies fostered greater output. But low prices, Gary notes, have also bolstered demand--so much so that consumption has outpaced production in seven of the past nine years. The upshot, according to Agriculture Dept. projections, is that global grain stocks at the end of the current crop year (next Sept. 1) will fall to their lowest level relative to demand in the entire postwar period.
The catalyst is China. Between the trade years ending in June, 1994, and June, 1995, China's grain trade balance swung from net exports of 8 million tons of wheat, corn, and rice to net imports of 16 million tons--making it the world's No.2 grain importer after Japan.
China's leaders, hoping to restore its food self-sufficiency, have unveiled plans to boost grain output by 50 million tons over the next five years. But Western experts are dubious, to say the least. "The tight grain supply situation," says Gary, "won't be alleviated anytime soon."