World food price crisis: 6% increase in July

Agricultural , Commodities , Corn , Food Aug 10, 2012 No Comments

World food price crisisAccording to FAO, global food prices have bounced back by 6% in July after several months of decline. This increase is mainly due to soaring prices for cereals and sugar: over 17% for cereals and 12% for sugar. The FAO food price index has rebounded significantly in July to 213 points vs. 201 in June.

The Rome-based institution said in a statement that the increase was mainly due to a jump in prices for cereals and sugar, and more moderate increases of oils and fats. International prices of meat and dairy products remained more or less unchanged. If this trend continues, the February 2011 peak of 238 points that started in July 2010 could be rapidly reached. It could be similar since in both cases, soaring grain prices were the original trigger.

This time it is the sharp deterioration of the corn crop prospects in the United States who served as a catalyst. Whereas a record global corn harvest of around 370 million tons was expected, the US crop has been so far reduced by almost 100 million tons because of a drought that hit the Midwest, drought which extended north to Canada.

Consequently, corn prices soared in June and July and followed by wheat. Especially since a drought also affected the wheat from countries around the Black Sea, like Russia and Ukraine. Prices for rice are currently stable. The FAO index of grain prices stood at 260 points on average in July, up 38 points or 17% compared with June, and just 14 points from its all-time record reached in April 2008.

Sugar prices have also increased in recent weeks by concerns over the sugar harvest in Brazil, world’s largest producer. International investors are also worried about the delayed monsoon in India and the possible return of El Nino in Australia. The FAO price index averaged 324 points for sugar in July, up 12% from June

Prices for oils and fats rose slightly due to the soybean oil price sharp increase because of the US Midwest drought. However, the large availability of existing and planned palm, sunflower and rapeseed oils have prevented the index to increase further. So, the FAO price index for oils and fats was almost stable at 226 points in July, an increase of 2% from June

The price of milk and meat have not yet been impacted. Milk prices are stable after five months of decline and the meat is slightly down by 1.7%. This decline in meat prices, however, could be only temporary because the rise in feed grain prices are forcing farmers to reduce their herds to cut costs and the impact will be felt longer term.

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Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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