Thursday, January 6, 2011

Food Prices Are Under Pressure

From the NY Times:

World food prices continued to rise sharply in December, bringing them close to the crisis levels that provoked shortages and riots in poor countries three years ago, according to newly released United Nations data.

Prices are expected to remain high this year, prompting concern that the world may be approaching another crisis, although economists cautioned that many factors, like adequate stockpiles of key grains, could prevent a serious problem.

The United Nations data measures commodity prices on the world export market. Those are generally far removed from supermarket prices in wealthy countries like the United States. In this country, food price inflation has been relatively tame, and prices are forecast to rise only 2 to 3 percent this year.

But the situation is often different in poor countries that rely more heavily on imports. The food price index of the United Nations Food and Agriculture Organization rose 32 percent from June to December, according to the report published Wednesday. In December, the index was slightly higher than it was in June 2008, its previous peak. The index is not adjusted for inflation, however, making an exact comparison over time difficult.

Adding to the problem is this:

The winter wheat crop in Kansas looks increasingly a market "flashpoint" in the making thanks to the dry start to the season, which has left its condition already well below average with a freeze on its way.

The decline in the condition of the winter crop in America's top wheat-producing state - where officials this week rated only 27% of the crop in "good" or "excellent" condition, less than half the recent average – has stoked expectations that a three-year run of above-average yields is at an end

"Increasingly, the current Kansas winter wheat crop looks to be tracking conditions similar to the three worst years in recent times – 1989, 1996 and 2002," Australia & New Zealand Bank said.

Such a comparison implies a steep drop in the harvest this year, with production tumbling by 34% in 1989, 11% in 1996 and 18% in 2002.