Blog: Dean BestWhy anxiety over commodities is deepening

Dean Best | 28 April 2008

If you thought rationing had been left behind in a world of post-war Britain and Pathé News, then think again.

For rationing has reappeared in the most unlikely of markets - the US. Last week, two of the country's largest wholesalers, Costco and Wal-Mart-owned Sam's Club, decided to restrict sales of rice amid growing concerns over supplies.

Now, it would be wrong to overstate the extent of the move. We're not about to return to mornings of queues and ration-books. However, the restrictions do indicate that anxiety over commodities is deepening.

Fears of a looming rice shortage have grown in recent weeks with prices hitting record highs and major rice-producing nations introducing export restrictions. Those fears are not just centred on rice. Concern among food manufacturers of all shapes and sizes over corn costs isn't going away, while in France, milk prices are set to soar by over a quarter.

The cost of corn has become inextricably linked to the production of biofuels - particularly in the US and the EU. Sections of the food industry have slammed government policy in Washington and Brussels over biofuels and now it appears there are cracks in the political consensus over the issue.

UK Prime Minister Gordon Brown said last week that London would look again at its support for EU-wide targets on biofuels. In Texas, meanwhile, the state governor has asked Washington to be allowed to slash the amount of corn it diverts for biofuel production.

The Texas governor has won support from sections of the US meat industry with companies like Tyson Foods and Pilgrim's Pride having recently been hit by rising commodity costs. The US meat sector has seen jobs cut and plants closed in recent months as businesses look to boost efficiency in the face of rising costs.

However, one piece of good news did emerge from the US meat business last week. Poultry group Sanderson Farms announced plans to expand, a move seemingly at odds with the cuts seen elsewhere.

Nevertheless, with Tyson, Pilgrim's and Sanderson set to file earnings reports in the next month, a clearer picture of the impact of commodity costs will no doubt emerge.


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