Food prices soar again
America’s worst drought for half a century has sent the price of agricultural commodities soaring, driving fears of higher food price inflation.
America's worst drought for half a century has sent the price of agricultural commodities soaring, driving fears of higher food price inflation. The country is one of the world's largest exporters of corn. Scorching weather in the midwest has damaged harvests, leading to a record rise in prices amid fears of shortages. Corn is trading at $8 a bushel, while Goldman Sachs forecasts it will hit $9 within three months. Meanwhile, benchmark soya bean prices reached a peak of more than $17.
To make matters worse, America isn't the only country in trouble. Concerns about dry crop conditions and reduced production are also mounting in other parts of the world. In Brazil and Argentina, water shortages have hit soya bean output. Heatwaves in southern Europe are damaging corn yields in a region that accounts for 16% of global exports. In India, a delayed monsoon season has affected the lentil, rice and oilseed harvest, and in Australia crops are enduring below-average rainfall.
Record high corn prices are of particular concern, says Garry White in The Daily Telegraph they could drive food prices higher. Corn is the main ingredient in animal feed for chickens, cows and pigs. "Feed costs account for about 40%-50% of total costs of production, and when a rancher or poultry producer or dairy producer is faced with higher feed costs it's less profitable to produce that animal," says Joseph Glauber from the US Department of Agriculture. So high corn prices tend to lead to higher meat prices.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The prospect of higher food prices is unlikely to sway the Federal Reserve's thinking on monetary policy, despite the impact on consumer price inflation, reckons Diane Swonk of Mesirow Financial. Just as with oil price fluctuations, the Fed will consider the surge temporary.
Weak consumer demand at home and abroad will also make it hard for producers to pass on increased costs to customers. However, the threat of rising inflation squeezing both corporate and consumer spending is yet another headache that central banks and the global economy don't need right now.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Review: The Store, Oxford – purveyors of excellence
MoneyWeek Travel The Store is a luxurious, new hotel in Oxford that has set up shop in a former department store in the heart of the city
By Chris Carter Published
-
Seven ways the Budget could hike inheritance tax or capital gains tax at death
Chancellor Rachel Reeves could target death taxes by raising IHT and/or levying CGT on inheritances. We look at some potential moves in the Autumn Budget
By Ruth Emery Published