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Felix Salmon on Argentina and Agricultural Commodity Prices

Felix Salmon watches Argentina continue to improve--and trashes U.S. agricultural subsidies:

RGE - Argentina catches another lucky break: Felix Salmon | Oct 20, 2006: How lucky, macroeconomically speaking, has Argentina been over the five years since its diastrous debt default? Every time economists say that things can't get any better and are going to have to start getting worse, more good news comes out. This time, it's global wheat prices, which have soared by some 40% in the past month and which are now at an all-time high. The price of wheat is not going to stay at these levels for long: it's being driven mostly by the drought in Australia, so when that breaks wheat is likely to come back down in price again. But for the time being, this is a great positive shock for Argentina's terms of trade.

Meanwhile, corn has followed wheat up, rising 30% in the past month, although it has been at these prices as recently as 2004. If the wheat price is good news for Argentina, the corn price is bad news for Mexico, where the beleaguered central bank is desperately trying to keep a lid on inflation despite a country where everybody seems to live on tortillas and salsa -- or, to put it in commodity terms, corn and tomatoes, both of which are surging in price.

Of course the best thing that could happen as a result of the increase in corn prices would be a massive reduction or elimination of corn subsidies in the US. They're pretty gruesome even by agricultural-subsidy standards, because they're harmful not only to global trade but to global health as well. The amount of high-fructose corn syrup in junk food is enormous, thanks to its negligible cost, and the 99-cent or even 49-cent hamburger is a function of cheap beef which gets that way because it's fed on corn and not grass. But the elimination of corn subsidies in the US is about as likely as Nestor Kirchner sending troops to Iraq.