World Bulletin / News Desk
Global alarm over a potential repeat of the 2008 food crisisescalated after data showed food prices had jumped 6 percent last month and importers were snapping up a shrivelled U.S. grain crop, helping drive corn prices to a new record.
Ahead of a critical government report on Friday on the state of the U.S. corn and soybean crops, which have been decimated by the worst drought in over five decades, the United Nation's food agency warned against the kind of export bans, tariffs and buying binges that worsened the price surge four years ago.
"There is potential for a situation to develop like we had back in 2007/08," the Food and Agriculture Organisation's senior economist and grain analyst Abdolreza Abbassian told Reuters.
"There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible."
Adding a further risk of strain on global food supplies, Japan's official weather bureau said on Friday its climate monitoring data and models indicated the El Nino phenomenon had already emerged and was likely to last until winter.
So far, most governments have refrained from trade intervention. Russia's deputy prime minister said this week he saw no grounds to ban wheat exports, as the country did in 2010, but he did not rule out protective export tariffs after the end of the 2012 calendar year.
Abundant rice supplies, sluggish economic growth and relatively lower oil prices may also help temper the rally in prices, Abbassian added.
But signs of unusually large early buying and extra stockpiling are emerging. U.S. corn export sales over the past week jumped to the second-highest in 10 months, if the sales figure includes a near-record one-time purchase by private importers in Mexico, the world's No. 2 importer.
A mix of high oil prices, growing use of biofuels, bad weather, soaring grain futures markets and restrictive export policies pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.
Unlike that demand-driven spike, however, the current rally in grains has been fuelled largely by a dire drought covering the U.S. Midwest. After slashing its corn crop estimate by 12 percent last month, theU.S. Department of Agriculture is expected to report a further 15 percent decline in a report on Friday, providing the most authoritative view yet of the weather damage to the world's biggest grower.
Benchmark Chicago corn prices for December delivery, already up more than 60 percent since mid-June, reached a new record of nearly $8.30 per bushel. Soybeans jumped 3 percent.
BANK CURBS APPETITE FOR FOOD
The price surge is also reviving a debate over the role of financial speculators in commodity markets. Big banks and institutional investors were often blamed for inflating prices back in 2008, although academic and government studies have offered conflicting views over the cause.
Commerzbank said it had joined two of its German peers in restricting food-related investments by stripping agricultural products from its ComStage ETF CB Commodity EW Index TR, a small $145 million commodity index fund.
The bank declined to say why it had made the change, but lobby groups and traders said the motive seemed clear.
"Climbing prices are creating reputational risk for banks," said Alexis Dawance, former manager of the agriculturals-focused Global Agricap Fund.
"The big grain traders probably have much more impact in food and commodity trading, but this is part ofthe bigger picture, with all the fat cat bashing that has been taking place. ... If food prices continue to rise you will see this happening more and more."
Whether the major global grain merchants emerge winners or losers from the latest spike is an open question.
The largest among them, Cargill, reported the lowest quarterly earnings in over two decades for the period ended May 31, prior to the U.S. drought, and conceded that it had been flummoxed by markets that it had long mastered.
"Cargill's global market analysis of supply and demand, and our trading expertise are long-standing strengths," CEO Greg Page said. "Even so, we did not trade as well in this year's markets, which were driven as much by the economic and political environment as by the fundamentals."
INDEX HIGHER THAN 2008
The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in July, up 6 percent from 201 points in June, the FAO said in its monthly update.
The rise, which followed three months of declines, was driven mainly by a surge in grain and sugarprices, while meat and dairy prices were little changed, the FAO said.
Although below a peak of 238 points in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa, the index is still higher now than during the foodprice crisis in 2007/08.
Higher food prices mean higher import bills for the poorest countries, which do not produce enoughfood domestically, and a strong dollar would deepen that impact.
"The very strong appreciation of the dollar, and the surge in prices, is basically a double blow which is going to be quite stressful for some of the more fragile countries," Abbassian said.
The weather outlook appears grim. While mature U.S. summer crops are now mostly immune to worsening drought conditions, crucial harvests in places like India and Australia could be endangered by El Nino, which typically curbs rainfall.
The U.S. government forecaster warned on Thursday that El Nino now appeared almost certain to set in within the next two months, although it would likely be weak to moderate strength. El Nino is a periodic warming of the tropical Pacific and brings shearing winds that hamper storm formation in the Atlantic and produce heavy rains in the eastern Pacific.
In its monthly assessment of the six-month outlook for El Nino, the Japan Meteorological Agency said monitoring data for July suggested the phenomenon had already emerged.
"The chances are high that the El Nino phenomenon will be maintained until the winter," the agency said in a statement on its website.
The last severe El Nino was in 1998, when the phenomenon caused more than 2,000 deaths and inflicted billions of dollars in damage to crops, infrastructure and mines in Australia and other parts ofAsia.
In the span of just a few months, what was to have been a year of plenty, helping replenish depleted global stockpiles, has instead become cause for alarm.
"What is quite certain is that it is not going to be a season where prices fall below the previous year, which is what we had anticipated," said Abbassian. "It is going to be another season of very high prices."
OPEC's second-largest producer, Iran is normally among the first members of the oil producers' group to call for supply cuts to support prices.
The 21-member Asia-Pacific Economic Cooperation (APEC) bloc said they would advance structural reforms to unleash new sources of growth.
Ukraine needs to pay its previous debt to Russia by the end of the year and pay in advance for getting new volumes of natural gas
The loss of Khafji's 280,000 barrels per day of Arabian Heavy crude will be felt more in Kuwait, which has far less spare output than its neighbour
Under Lufthansa's proposals, pilots would still be able to retire early, but the age would gradually increase to 60 from 55.
Labor tension on the rise as high inflation reduces spending power.
Third quarter growth was lowest in more than five years, threatening annual target
De Margerie was killed when a business jet collided with a snow plough during takeoff at Moscow's Vnukovo International Airport overnight, the company and airport officials said.
Stabilised political and security situation, the launch of government initiatives toward fiscal consolidation and strong support from external donors are some of the reasons given for improved economic outlook.
Norway will not supply gas to Europe in case of supplies being cut by Russia, says Norwegian Energy Minister Lien
A fall in global oil prices, down more than 20 percent from this year's June high, means that ending costly diesel subsidies will save the government money without hurting consumers.
EU officials said the gas talks would continue in Brussels next week, with Poroshenko telling reporters that the financing still needed to be resolved.
The food-producing regions of Guinea, Sierra Leone and Liberia in West Africa have been severely affected by the worst outbreak on record of the viral haemorrhagic fever
Fall in crude oil prices will effect Iran's oil industry more than Western sanctions
Widodo currently plans to raise the price of both gasoline and diesel by 3,000 rupiah ($0.25) per litre by November, the advisor said.
Mario Pezzini and Romano Prodi jointly emphasized that Africa should be of priority for European Union’s future development policies.