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Grain Consumers Seen Buying Hand-to-Mouth on High Prices

Oct. 8 (Bloomberg) -- Buying grains “hand-to-mouth” may become the new way consumers trade amid higher prices and slowing economies that reduce demand and availability of funds, Grain and Feed Trade Association President Patrick Savage said.

Consumers have been buying supplies only to meet their immediate needs for the past 18 months and will continue this pattern “for a long time,” Savage said in an interview in Edinburgh Oct. 5. Corn is trading 42 percent above its five-year average in Chicago, while wheat and soybeans are 25 and 30 percent higher, respectively, after dry weather hurt crops from the U.S. to Russia.

“Maybe it’s going to be the new way of trading but the market will still trade forward,” Savage said. “Some countries are very switched on to buying forward. Others are in very difficult scenarios. One dollar is a lot when you are buying a million tons.”

World food prices rose to the highest level in six months in September, the United Nations’ Food and Agriculture Organization said Oct. 4. Egypt, the world’s biggest wheat importer, is seeking as much as $4.8 billion in loans from the International Monetary Fund, while Morocco and Jordan have also sought IMF aid this year.

Egypt’s wheat imports will drop by 23 percent to 9 million metric tons this season, while Algeria will buy 21 percent less, the USDA estimates. Seven out of the 10 top wheat-importing countries will reduce purchases this season, according to the agency.

France is likely to dominate in export markets until American and Australian wheat comes in as exports from the Black Sea region dry up, Savage said.

‘Magical’ Wand

“You have U.S., South America and Australia all at once,” Savage said. “It’s not so much that there won’t be grain, it’s that there is very little cover from consumers in some of the countries. When they do buy they are going to pay a lot more than they have been paying unless someone’s got a magical wand.”

Wheat prices in Chicago have rallied 39 percent in the past 12 months and corn gained 24 percent. Milling wheat prices on NYSE Liffe in Paris, the European benchmark, have climbed 41 percent.

World grain production will fall to 2.29 billion tons this year from 2.35 billion tons in 2011, according to the FAO, which cut its previous estimate by 8.8 million tons. High food costs last year contributed to civil unrest across the Middle East and North Africa, toppling governments in Egypt and Tunisia.

Global wheat production will decline 5.2 percent this season to 658.7 million tons and the corn crop will drop 4.1 percent to 841 million tons, the USDA estimates.

Cautious Consumers

Consumers may be more cautious as, while cereal farmers are making money, livestock farmers face losses and the food chain “is dealing with a recession” in addition to surging costs, Savage said.

Even as loans are becoming more expensive and hard to get, bigger companies are having no difficulties with financing, Savage said. Loans to commodity companies are down 35 percent in the first nine months of the year from the same period in 2011, data compiled by Bloomberg show.

“Our industry, to be honest, is quite a secure industry, Savage said. ‘‘You are dealing with human consumption. Governments won’t let people starve, so they’ll have to give the money. I don’t hear any big company having any financial problems.”

To contact the reporter on this story: Maria Kolesnikova in London at mkolesnikova@bloomberg.net; Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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