The heavy rains have flooded the US farm belt and much of the soyabean crop, mainly used for feeding livestock, could be ruined.
Soyabean futures prices, traditionally volatile, have soared on the Chicago Board of Trade. They reached four-year highs, touching dollars 7.45 a 60lb bushel, up dollars 1.65 in a month. On Friday soyabeans (or soybeans, as they are known on that side of the Atlantic) for August delivery were trading around dollars 7.18.
Corn (or maize) prices have also climbed nearly 40 cents to dollars 2.68 because of potential crop losses. But the US soyabean crop, one- quarter the size of the massive US corn crop, is expected to suffer the most extensive damage as bad weather has come at a critical time in its growing season.
Last week the US Department of Agriculture said that 7.8million acres of farmland were flooded, and put crop losses at dollars 2.4bn.
Soyabeans do not figure largely in most people's lives in Britain and the rest of Europe. Soyamilk, soyabean curd or tofu, and soyabean oil, used in blended vegetable oils and processed foods, are the most visible consumer products.
The British climate is unsuited to growing the oilseed. About 1 million tonnes of soyabeans are grown in Europe, mostly in France and Italy, and Europe imports the rest of its soyabean needs - more than 12 million tonnes a year from the US, Brazil and Argentina. Most of the beans are crushed and processed into feed for pigs and poultry. The soyabean oil is a by-product.
But in the US, soyabeans hold a legendary position in Midwestern folklore. Some time after 1920, livestock men discovered the yellow beans contained 40 to 48 per cent protein, double the content of meat and fish and three times that in eggs. The meal from crushed soyabeans sped up weight gain in animals and cut the time and cost of fattening them. The American farm belt, from the Midwest south to the Mississippi River delta, started growing soyabeans in a big way.
As demand for meat rose in the increasingly wealthy Western world, demand for livestock feed also climbed. International grain companies such as Cargill and Archer Daniels Midland buy the soyabeans and sell them to crushers or process them themselves for eventual sale to farms and feedlots.
Futures markets exist to reduce some of the risks for processors, traders and farmers who keep inventories of variably priced commodities. But the soyabean contract is the most volatile and active of the CBOT's agricultural futures contracts, and has always enticed speculation.
Prices hit an all-time high around dollars 13 a bushel in 1972, when the Russians had a grain-buying spree. Another big surge occurred when the infamous Hunt brothers, who tried to corner the silver market in 1979-80, made a big play in soyabean futures in 1976. The family bought the maximum amount allowed, 21 million bushels, pushing the price up near the dollars 13 level again. Prices fell back again only after the federal regulators, the Commodity Futures Trading Commission, got wind of the manoeuvre.
Dick Loewy, president of AgResource, an independent research company in Chicago, said that big speculative funds and small retail investors have been buying soyabeans in the current rally. Some analysts expect dollars 8 beans, but he thinks prices may have reached a short-term peak.
'Everyone wants to liken this to the 1988 drought, when prices hit dollars 9, but the flooding is more regionalised and many crop areas have not been affected,' he said.
Yet prices could be weather-sensitive until harvest in October and November, depending especially on favourable growing conditions in coming weeks. An early frost before could also be damaging.
In Britain, the feed processing industry will be most affected by the price rise. Pat Lake, buying manager at J Bibby Agriculture in Oxfordshire, one of Britain's largest feed processors, said that by August his firm would start feeling the effects.
'Our livestock customers will have to pay in the end,' he said. If prices keep rising, they could affect livestock prices and eventually be passed on to shoppers in higher egg and pork prices. Chicago soyabean oil prices have risen only slightly, so retail prices of vegetable oils may be unchanged.Reuse content