Grains, favored by investors in time of crisis

• Grain prices reach historic highs

• Investors prefer investing in commodities, since other investments such as currencies seem to have lust their luster in times of crisis

• Minister of Agriculture, Valeriu Tabără: "There are no distortions on the domestic market so far"

• Producers: "Food prices will rise"

Agricultural commodities seem to be gaining favor with investors, as their prices continue to rise, following this summer"s drought, which lowered the grain output of the Russian Federation and of Kazakhstan, a rise which was fueled further by the recent announcement of the US Department of Agriculture, which said that the country"s grain production will most certainly fall this year. The US is one of the largest agricultural producers of the world.

Grain prices recently reached two year highs in Chicago, in just two trading sessions, as the price of corn grew 15%, the price of wheat increased 10%, and soybeans rose 11%, as Russia stopped exporting cereals until the end of the year, and analysts revised their forecasts downwards concerning global production. Wheat forecast was revised by -1.8%, from 177.79 million tons, to 174.66 million tons.

Record prices on the major international markets as well as the controlled devaluation process of some currencies have caused agricultural producers to favor exports, and this business opportunity was seized by investors who preferred to invest in cereals, as other investments such as currencies seem to have lost their luster in times of crisis.

The drought and speculators were blamed for the rise in the price of agricultural commodities, but economic analyst Călin Rechea claims that things are more complex than that: "The major central banks have pursued a policy of devaluation of the national currencies in order to stimulate exports".

Given the aforementioned circumstances, there are investors who turned to commodities to protect themselves from the unprecedented deluge of newly printed money. Blaming the speculators does nothing more than try to shift the blame for the current situation".

Some voices claim that major investment funds opted to invest in grains - for which there will always be demand -, while also fearing a second leg of the crisis that could catch them on the off-side, with their money tied in riskier investments, with a higher risk of devaluation.

• What"s happening in Romania"s own backyard

Romanian authorities claim that the turmoil on the foreign markets will not significantly affect the functioning of the domestic market, as Romania had a good harvest this year, which is enough to fill the domestic consumption as well as the need for exports.

Agriculture Minister, Valeriu Tabără, said the following for BURSA: "There are no distortions on the domestic market for now. We had a good harvest this year, which is sufficient to cover the domestic consumption as well as exports. I certainly can"t tell what the future holds, whether there will be distortions or not. I won"t intervene and ask for the prohibition of cereal exports. The discussion about food prices is not a direct consequence of increased VAT, but of the issues which appear in the trade circuit. I am referring here to taxes and markups by food stores which increase prices".

Statistics of the Ministry of Agriculture confirm that Romania had good crops this year. The total wheat output is 5.7 million tons, 500,000 tons higher than in 2009, the barley and two-row barley harvest reached 1.25 million tons, down from 1.82 million tons in 2009, while estimates for corn predict a harvest of 9.4 million tons, almost 2 million tons higher than last year"s harvest, of 7.98 million tons.

The Ministry of Agriculture recently said, in a press release, "that he will not support price increases which at the moment have no justification" and said that even though the prices of the raw materials have increased, "the gap in prices on the way from processors to the stores is high enough to keep prices stable".

• Producers announce food price increases

Romanian food producers say that food prices will certainly increase in the near future, because, they claim, 70% of the final prices of food products are influenced by the price of raw materials. "Given that commodities account for 60-70% of the end prices of food products, any increase in the price of raw materials can lead to an increase in the price of foodstuffs", the chairman of Romalimenta, Sorin Minea, said. Mr. Minea did not however make a prediction on how much he expected prices to increase.

While food processors are more reserved when it comes to making clear cut predictions, in order to avoid being fined by the Competition Council for influencing prices, farmers say that the increased prices of commodities will generate a price increase of up to 25% for commodities.

The president of the National Federation of Agricultural Producers of Romania, Viorel Matei, considers that the rising food prices will be blamed on the prices of commodities, VAT and inflation, but one of the causes is the fact that some producers wanted to export grains, which were then imported using different channels at higher prices.