Perilous
Times
Global Food Costs Seen Reaching a Record High This Year as
Inflation Accelerates
By Tony C. Dreibus - Apr 26, 2011 9:41 AM PT
April 25 (Bloomberg) -- John Brynjolfsson, chief investment
officer at Armored Wolf LLC, talks about the outlook for inflation
in the U.S. and investment strategies designed to hedge against
it, the U.S dollar, the euro and commodity-based currencies
including the Russian ruble. Brynjolfsson, speaking with Pimm Fox
on Bloomberg Television's "Taking Stock," also discusses Federal
Reserve policy and the central bank's new communications plan that
includes a planned news conference by Chairman Ben S. Bernanke
after the Fed’s policy statement is released on April 27. (Source:
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.
Price Report
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.
‘Their Moment’
“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.
Biofuels Factor
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.