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Concern over Global Food Prices Escalates

August 15, 2012
By: Fran Howard, AgWeb.com Contributing Writer
Global Food Demand
  
 
 

Soaring corn, soybean, and wheat prices have caught the attention of governments around the world.

France, the United States, and Mexico will hold a conference call at the end of August to determine whether an emergency meeting of the G20 nations is warranted to head off a repeat of the 2007-08 spike in food prices that triggered riots in parts of the developing world.

The worst drought in decades in the United States coupled with problems in the Black Sea region could hasten calls for the United States to change its ethanol policy as well as pleas to Russia to not impose export bans.

A day following the release of USDA’s August World Agricultural Supply and Demand Estimates, which dramatically cut production forecasts for both corn and soybeans, the United Nation’s food agency had already stepped up pressure on the United States to change its policy on ethanol.

Global food prices are still below their all-time highs set in February 2009, but they are rising. On Aug. 9, the Food and Agriculture Organization released its July Food Price Index, which rose to 213, up 6% from May levels, but still below the record high of 238.

The problem with indexes is that they reflect the weighting given to the various food products used in the index, says Michael Swanson, Wells Fargo agricultural economist, Minneapolis. For instance, he says, rice prices have not spiked, and much of the world’s diet is rice-based. "It’s probably as stressful now as it was in 2008-09, but the developed world will feel the impact this time more so than the developing world," he says. The exception to that will be the lower to middle income countries with wheat-based diets, particularly those in the Middle East.

Dwindling Feed Use

Swanson notes that in 2005-06, 6.2 billion bushels of corn went to feed use. In 2007-08, 5.9 billion bushels of corn was used for feed. USDA’s latest estimate for the 2012-13 crop calls for 4.1 billion bushels to go into feed channels. "Feed use of corn has fallen by one-third in seven years," Swanson notes. "Some of the loss is offset by distillers’ grains but not all." U.S. consumers should begin to really feel the impact of surging corn and soybean prices later this year, he adds, when retail meat and dairy prices increase.

U.S. retail food prices, on average, have been flat for the first half of the year despite surging commodity prices. "The food-at-home Consumer Price Index (CPI) decreased 0.1% from January to June 2012, with deflationary pressure due to unusually low fruit and vegetable prices as well as decreased prices for fluid milk and pork," USDA says in its monthly summary.

"Alternatively, prices for beef and veal, poultry, and fats and oils have increased thus far in 2012. The severe drought in the Midwest is expected to affect prices for corn and soybeans as well as other field crops, which should, in turn, impact retail food prices. However, the transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought is expected to be realized in 2013."


USDA’s Economic Research Service’s inflation forecast for all food—food purchased at retail and in restaurants—for 2012 remains unchanged at 2.5 to 3.5%. Next year, inflation is expected to remain strong for most animal-based food products due to higher feed prices and above the historical average for cereals, bakery products, and other foods.

"The full extent of the drought and its effects on commodity prices are as yet unknown," USDA says. At this time, USDA’s best estimate is for 3 to 4% increases in food prices next year. In 2008, U.S. food prices increased 5.5%.

USDA also notes that raw commodities account for only 14% of the average retail food price. "So even if all commodity prices doubled, retail food prices would increase by about 14%," says USDA. Energy, transportation, labor, processing and marketing costs play a much larger role. Unlike today, crude oil prices also hit record highs in 2008 of more than $145/barrel.
 


 

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COMMENTS (9 Comments)

- WELLINGTON, TX
The corn is going to all be contaminated with aflatoxin and the only use for it will be for ethanol anyway​
8:56 PM Aug 16th
 
FG - cuba, IL
Freeport,

Thanks for seeing my point and recognizing it. Far too few are willing to openly review their thoughts.

Yes, the price of corn as it only very narrowly relates to livestock (of any type) is a very limited view of this real problem. I recognize that fully. While I no longer raise livestock (cattle and hogs), I did at one time and see the big picutre on this.

But again, my focus was on how the price of corn wil be used to 'justify' consumer price increases that can not be justified.​
11:08 AM Aug 16th
 
Freeport, IL - Freeport, IL
FG;

Yes you are right. After reading your comments again, I did miss your message the first time. I became focused on what I didn’t want to see. Your point is unfortunately correct and my outlook is not going to improve things. Farmers are not going to come out looking like heroes.

At the risk of being redundant; Price this year, although still a factor, may take a back seat to supply. How much corn would be raised if there was a limited supply of anhydrous or diesel fuel? Forget the price, what if it was not available? That is what the end users of corn are facing. To limit the argument to price increase of chicken as it relates to the input cost of corn undermines the seriousness of the situation.

Please accept my apology. I now get your point

9:24 AM Aug 16th
 
Freeport, IL - Freeport, IL
FG;

Yes you are right. After reading your comments again, I did miss your message the first time. I became focused on what I didn’t want to see. Your point is unfortunately correct and my outlook is not going to improve things. Farmers are not going to come out looking like heroes.

At the risk of being redundant; Price this year, although still a factor, may take a back seat to supply. How much corn would be raised if there was a limited supply of anhydrous or diesel fuel? Forget the price, what if it was not available? That is what the end users of corn are facing. To limit the argument to price increase of chicken as it relates to the input cost of corn undermines the seriousness of the situation.

Please accept my apology. I now get your point

9:24 AM Aug 16th
 
PullMyFinger - Chappell, NE
Hey, no one seemed at all concerned when the farm use diesel price rose 663% because a couple of bozos thought it would be a real keen idea to illegally invade Iraq. That price has come down SLIGHTLY but is still more than 5 times what it was pre-occupation. Why would we even bother mentioning food prices that STILL have not risen 5% seven years later? We all must pay for stupidity in high places. Think before you vote.
10:56 PM Aug 15th
 
FG - cuba, IL
Freeport, Il

Since corn prices are being used as the reason for the price increases, that is naturally the cost to analyze.

You are trying to factor in other reasons. But boiler production drop is not the issue raised, The issue raised is the price of corn.

Corn producers could use the same logic as yours when it comes to decreased production yet high costs in seed, fertilzer etc. Again, that is another issue.

If you can't understand my original point it is because you don't want to.




9:13 PM Aug 15th
 
Freeport, IL - Freeport, IL
December corn futures went from $5.20 to $8.20/bushel. A 58% increase. This occurred because corn production went from 14.79 billion bushels to 10.78 - a 27% decline. Why is the price increase of chicken limited to $0.09 if the broiler industry has a real possibility of dropping production? Is the economics of broilers different than corn? The production drop of broilers could come from limited corn supply, limited soybean meal supply and/or the economics of broiler production. The margin in the broiler industry is very small. The 58% increase in corn prices is a big deal in the broiler industry especially in the short run. This drought has the potential of being bad - real bad.
6:54 PM Aug 15th
 
Freeport, IL - Freeport, IL
December corn futures went from $5.20 to $8.20/bushel. A 58% increase. This occurred because corn production went from 14.79 billion bushels to 10.78 - a 27% decline. Why is the price increase of chicken limited to $0.09 if the broiler industry has a real possibility of dropping production? Is the economics of broilers different than corn? The production drop of broilers could come from limited corn supply, limited soybean meal supply and/or the economics of broiler production. The margin in the broiler industry is very small. The 58% increase in corn prices is a big deal in the broiler industry especially in the short run. This drought has the potential of being bad - real bad.
6:54 PM Aug 15th
 
FG - cuba, IL
Let's see.

Takes about 1 bushel of corn to produce 32 lbs of chicken or 1.75 lbs of corn per lb of chicken

If corn goes from $5 to $8 a bushel that means a price increase of corn goes from 9 cents a lb to 14 cents a lb ( 5 cent a lb increase in corn) for a NET price increase of about 9 cents a lb. for the chicken.

Wonder how that 9 cents a lb will be reflected a the grocery store.

oYu can count on three things.

First, the price gougers will be in full force.
Second, the media wil not analyze anything and blame the farmer.
Third, the AG organizations will never respond thus helping to screw corn producers even more.
5:10 PM Aug 15th
 



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