World Food Prices Rise at Fastest Pace in a Decade as Inflation Concerns Continue in U.S.
AgDay 06/04/21 - Food Prices
The United Nations issued a warning this week as world food prices are rising at their fastest pace in a decade.
The data comes from the UN's Food and Agriculture Organization (FAO)'s Food Price Index for May. The Index surged in May with prices rising at their fastest monthly pace since October of 2010. Global food prices have risen for 12 consecutive months and now sit at their highest level since September of 2011.
What's driving the increase? Drought in key growing regions including the western U,S. and Brazil, slowing vegetable oil production in Southeast Asia along with increasing costs for livestock producers and soaring Chinese demand.
Arlan Suderman of StoneX Group says inflation is also part of the equation.
"It definitely is a factor," says Suderman. "And we saw after the Beige Book report [Federal Reserve] came out this past week talking about inflation pressures, how money came into the commodity sector in the overnight trade following that report's release, and it's a hedge against inflation. However, whenever that causes the dollar to rise sharply, because interest rates start to go up, then they start to pull back because the fear factor takes a hold, we're not going to compete. Longer term, though, the trend is inflation tends to be positive for the commodity sector, particularly those with a story."
Suderman says data indicates wage inflation is also having an impact. He says wage inflation is increasing at rates the U.S. hasn't seen since the 12th Federal Reserve Chair Jimmy Volcker held his position from 1979 to 1987, under U.S. presidents Jimmy Carter and Ronald Reagan.
"I still see momentum building on the flip inflation pressures right now," Suderman adds. "And a lot of people talk about it being transitory, the Fed talks a lot about that supply lines refilling, that's not what we're seeing in ag, this is a build up a demand that's been building up over time. And then when you look at wage inflation, the last four quarters in a row combined, the strongest wage inflation we've seen in four decades going back to the Paul Volcker era."
FAO says the world food price surge comes with a warning as it echoes similar moves in 2008 and 2011, when high costs led to food riots across some 30 nations.
