From Bloomberg Businessweek, by Tony C. Dreibus:
April 26 (Bloomberg) -- Global food prices may rise 4.4 percent to a record by the end of the year, driven by demand for meat, oilseeds and grains used to make ethanol, adding to costs that mean inflation is accelerating from the U.S. to China.
The United Nations’ Food Price Index may climb to 240 points from 229.84 last month, said William Adams, a fund manager at Zurich-based Resilience AG, which has $22.2 million of assets. Global corn stockpiles are shrinking the most in seven years, inventories of nine edible oils will drop to the lowest since 1974 and U.S. beef stocks will be the smallest since 1999, the U.S. Department of Agriculture estimates.
“The stockpiles are being severely depleted,” said Adams, who correctly forecast gains in heating oil and gasoline prices last year. “Eventually it gets to the consumer. The U.S. government isn’t subsidizing pork chops like it is ethanol.”
The cost of living in the U.S. rose at its fastest pace since December 2009 in the 12 months ended in March. Chinese consumer prices rose last month by the most since 2008. The People’s Bank of China raised borrowing costs four times since October and the European Central Bank increased rates on April 7 for the first time since 2008. World Bank President Robert Zoellick said April 16 that the world is “one shock away” from a crisis in food supply and prices.
The UN’s food-price index, which covers 55 commodities, reached an all-time high of 236.8 points in February, before dropping by about 3 percent in March. The next report is scheduled for May 5.
Costlier food contributed to riots across northern Africa and the Middle East that toppled leaders in Egypt and Tunisia. It also drove 44 million people into poverty in the past year and another 10 million may join them should the UN index rise another 10 percent, the World Bank said April 16. Consumers should get used to paying more because farmers will take years to expand production enough to meet demand, the International Monetary Fund said in a first-quarter report.
Wheat traded on the Chicago Board of Trade, a global benchmark, jumped 75 percent in the past 12 months, soybeans gained 38 percent and corn more than doubled. U.S. wholesale beef prices are up 13 percent this year and pork costs 22 percent more, USDA data show.
While the gains increase costs for consumers they also mean U.S. farmers, the world’s biggest agricultural exporters, will earn a record $94.7 billion this year, the USDA estimates. North Dakota, the largest wheat-growing state, has a jobless rate of 3.6 percent, the lowest of any state.
“There are not a lot of opportunities like this for farmers,” Adams said. “Raw materials are actually at a premium, so this is their moment.”
Consumers are unlikely to make major cutbacks on meat purchases even as beef and pork prices jump, USDA’s Chief Economist Joe Glauber said yesterday. Some may opt for cheaper cuts, Glauber said.
Prices for meat, poultry and fish will jump 5 percent to 6 percent in 2011, led by beef, which may climb 8 percent, and pork, which could gain 7.5 percent, the USDA said in a report.
U.S. Federal Reserve Vice Chairman Janet Yellen said April 11 that higher food and fuel costs will have only a temporary impact on inflation and the gains do not warrant a reversal of record monetary stimulus.
The use of some crops is also gaining because of demand for alternative fuels after oil traded on the New York Mercantile Exchange rose 33 percent in the past year. Denatured ethanol, which contains additives to make it unfit for human consumption, rose 65 percent on the CBOT over the same period.
Demand for U.S. corn from ethanol producers including Archer Daniels Midlands Co. will rise 9.5 percent to 5 billion bushels this year, equal to 40 percent of the national crop, USDA data show. U.S. lawmakers introduced legislation last month to scrap a 45-cent-a-gallon tax credit for producers.
“Biofuels, including ethanol, are a factor, but a relatively minor one” in food costs, Michael Baroni, vice president of economic policy at Decatur, Illinois-based ADM, said in an e-mail.
U.S. ethanol makers use 3 percent of global grain supply and produce 38 million metric tons of distillers grain and gluten used in animal feed, according to the Washington-based Renewable Fuels Association, which represents the industry.
U.S. corn stockpiles will fall to 675 million bushels by Aug. 31, from 1.7 billion bushels, the USDA estimates.
“Ethanol producers may be confronted with a squeeze on corn supplies during the late summer months,” F.O. Licht, a commodity researcher based in Ratzeburg, Germany, said in a report this month.
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