August 27, 2012
Corn, wheat and soybean prices climbed dramatically in June-July, but have decreased slightly in the past few weeks. In July, the FAO cereals price index rose 17% to 260 points, close to the record high of 274 points in spring 2008. The overall food price index climbed 6% in July.
The rise in food prices is mostly driven by increased grain prices. The acute drought affecting the US has devastated corn and soybean harvests. The drought in the Black Sea region, which also threatens wheat production in Russia (the second biggest wheat exporter after the US), Ukraine and Kazakhstan may possibly lead to export restrictions. Meat prices will eventually be driven up, but this may not happen until next year since farmers are being forced to rush their cattle to market to avoid prohibitive feeding costs – thus boosting supply. Although the situation is of concern and higher food bills are expected in the coming months, a widespread food crisis is not in sight at this point. A positive sign is that the price of rice has been unaffected to date – although lack of precipitation may become a concern in India. Moreover, crude oil prices are lower than in 2007/08. Concerns about headline inflation are also lower now, given current global economic conditions.
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