Food Prices Continue Decline -- But Maybe Not for Long

For the third consecutive month, food prices in June declined, down -1.8% to their lowest level since September 2010. Prices peaked in February 2011 and have declined by more than 15% since then.

There are signs, however, that the decline is beginning to reverse, according the United Nations Food and Agriculture Organization (FAO):

Food commodity prices have started rising again recently, mostly because of adverse weather and this may result in a rebound of the Food Price Index in July.

FAO also lowered its forecast for 2012 world cereal production by more than 23 million tonnes from May, which is likely to result in a smaller build-up of global stocks by the end of seasons in 2013.

US corn prices continue to increase steadily from their low in early June due to hot, dry weather and declining harvest forecasts. Corn is up about 3.3% this morning at $6.74/bushel and wheat is approaching $8/bushel.

The FAO cut its estimate of this year’s corn harvest by 25 million metric tons to 350 million metric tons (13.8 billion bushels), which is less than the US Department of Agriculture’s most recent estimate of 375.7 million metric tons or 166 bushels/acre. Even that estimate is higher than some recent analysts’ estimates of less than 155 bushels/acre. A recent survey of US corn growers indicated that nearly half (46%) expect yields of 139 bushels/acre or less.

According to the FAO, the overall supply will be “adequate” to meet demand in 2012-2013, “thanks to abundant supplies of rice, a leading food staple, and sufficient exportable supplies of wheat and coarse grains.” Supplies may well remain adequate, but at what price?

Paul Ausick