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Global food prices headed for a new high

Last week Rabobank released a report predicting global food prices are likely to reach an all-time high late this year or early next year as the high corn and soybean prices come into play. The report estimates that the United Nations Food and Agricultural Organization (FAO) Food Price Index will rise by 15 percent by the end of June 2013.

The report entitled “Re-entering Agflation” was compiled by Rabobank’s Food & Agribusiness Research and Advisory (FAR) group. Luke Chandler is Global Head of Agri Commodity Markets Research at FAR, he says the U.S. drought along with water shortages in South America and Russia are all contributing to the high corn and soybean prices. However, he notes there is “a striking difference” between this situation and that we faced back in 2008. That time the global food prices were pushed up by tight global wheat and rice supplies, food staples in many of the world’s developing countries. This time it is corn and soybeans which are more for the livestock industry. So while that will prompt a reduction in livestock numbers around the globe, “The impact on the poorest consumers should be reduced this time around, as purchasers are able to switch consumption from animal protein back towards staple grains like rice and wheat.”

The shortage of wheat and rice in 2008 was made worse by countries who, for fear of running short, cut off exports which in turn prompted panic buying in food-deficit countries. Chandler says there are sufficient supplies of wheat and rice in the world to pick-up the extra demand and hopes cooler heads will prevail around the globe this time.

The impact on the livestock industry is going to be significant as high feed prices will prompt a substantial reduction in cattle, hog, poultry and milk production. The long production cycles of livestock, especially for cattle, will keep pressure on rising food prices as herds take the time to rebuild. The full effect of this commodity price rally and the subsequent lower meat and milk output, will be a multiyear rebuilding of herds, which will keep price levels high.

There are other variables which could come into play but for now the report is based upon the Euro zone holding together, China’s economy slowing a bit and the U.S. economy continuing a slow recovery. “Overall we are in a period of high prices globally and we are seeing the influences of strong emerging markets continuing which is underpinning the outlook for the agricultural market.”

AUDIO:Chandler talks about the report 15:50 mp3