From: Reuters
Published May 15, 2008 05:06 PM

Food price surge may be nearing end

By Sam Nelson - Analysis

CHICAGO (Reuters) - Forecasts for record wheat and rice crops this year have tempered a rally in global grain prices, but there is little relief in sight from high food costs pinching families and world anti-hunger groups alike.

Predictions of a bumper wheat crop this year have cut prices for the grain in the United States, the world's top exporter, by 42 percent since a record high was set on February 27. But prices are still 64 percent above those of a year ago.

U.S. rice prices have fallen 15 percent the past three weeks, but remain at more than double year-ago levels.


A food price index compiled by the United Nations' Food and Agriculture Organization (FAO) fell in April for the first time in 15 months, another hint that a surge in food inflation may be nearing an end.

FAO's grains economist Abdolreza Abbassian told Reuters "the worst seems to be behind us."

But analysts said prices for wheat and rice and other staples consumed across the globe still could spike higher on any sign that supplies will be disrupted, including by weather.

"We're expecting pretty good wheat harvests but it's awfully early in 2008, a lot of the 2008 wheat crop isn't even in the ground yet," said Tom Jackson, economist for Global Insight based in Philadelphia.

Meat prices would depend largely on prices of corn -- used to feed livestock -- that rose to a record high above $6 a bushel early this month as rains delayed seeding in the United States, the world's top exporter.

Farmers are picking up the seeding pace, pressuring prices at the Chicago Board of Trade.

U.S. soybean prices have tumbled 17 percent since rising to a record high in March, but remain 73 percent above the price of a year ago. Prices fell sharply on Thursday amid signs that a farm strike might be resolved in leading exporter Argentina.

Whenever the strike in Argentina ends, supplies from the world's third largest soy exporter would move across the globe to feed livestock and poultry that depend on the protein-rich oilseed.


Meat companies have been hit hard by the rise in feed costs. Tyson Foods Inc. said on Thursday there will be less chicken in supermarkets this summer, and the meat will be more expensive as it passes on higher feed costs to consumers.

"Clearly, higher commodity price increases are having a direct impact on food inflation," said Bill Lapp, president of consultancy Advanced Economic Solutions.

"In my judgment, the increased costs have not been fully passed on to the consumer, and unfortunately it is very likely that there will be higher prices as we move through 2008 and into 2009," he said.

FAO reports that food prices rose by nearly 40 percent in 2007. Thirty-seven countries face food crises, according to the FAO.

As per capita incomes grow, especially in China and India, the demand for products like meat are rising.

And in America, soaring demand for corn from the ethanol industry has beef, pork and chicken producers trimming production because record-high corn prices have cut profit margins.

Global corn supplies, while expected to increase nearly 4 percent this year to 109.7 million metric tons, are projected to drop back nearly 10 percent next year to 99 million metric tons and that's assuming normal weather...a risky assumption.

The soaring food costs have touched off protests in several parts of the world and toppled a government in Haiti.

The World Food Program, facing an unprecedented surge in the price of food it provides to the world's hungry, this month obtained about 60 percent of the $755 million in additional funds it requested to cover planned aid donations this year.

In Mexico, an industry group warned on Wednesday of a looming 18 percent increase in the price of tortillas, a politically sensitive issue in a country where the corn pancakes are eaten more often than bread.

"All indicators suggest that food prices are unlikely to fall any time soon and, in fact, may rise much more depending on countries' decisions about biofuels," says Mark Rosegrant, a director with the International Food Policy Research Institute in Washington D.C.

(Reporting by Sam Nelson; Editing by David Gregorio)

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