It is too early to determine what lasting impact last week’s terrorist attacks on the United States will have on global grain markets.
But generally, the uncertainty about possible future terrorism and the response by the U.S. and its allies is going keep grain markets on edge, just like the rest of the economy.
It will take a week or two for a new equilibrium to develop, but in the meantime, here are a few issues to watch. The U.S. is concentrating its investigation on Islamic militant Osama bin Laden, said to be located in Afghanistan.
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The U.S. might become militarily active in the region, which has long been in tension.
Afghanistan is a wretchedly poor country that has been wracked by war for more than two decades, fighting first the Soviets and then each other in a civil war. Compounding its problems is a devastating three-year drought.
It is not a factor in the world grain trade except as a destination for food aid, and it has received little of that.
Of greater concern is Pakistan, Afghanistan’s eastern neighbour and a holder of atomic weapons. The U.S. wants Pakistan’s help in its war on terrorism and specifically in its effort to get bin Laden.
Pakistan’s government has agreed, but faces strong opposition from its own Islamic militants. Also, it has about 1.2 million Afghan refugees.
There is some concern about the stability of the Pakistani government. If, in the worst case, the
Islamic militants overthrew the government, they would get their hands on the country’s nuclear arsenal.
Those weapons were developed during Pakistan’s still simmering disputes with India, which also has nuclear weapons.
Clearly, the region is volatile and demands all the diplomacy the U.S. and its allies can muster.
As for the grain situation, India is sufficient in wheat and has actually exported some the last two years. Like Afghanistan, Pakistan suffered drought, but its irrigation allowed it to meet its needs, and even export a small amount.
The U.S. has traditionally supplied Pakistan with wheat, but Australia recently has gained market share. Canada is not a big wheat supplier in the region, but India is a major market for Canadian pulses and mustard seed.
One positive development for grain markets is the new weakness in the American dollar. If it holds at lower levels, it will make American grain more affordable.
