Global Food Supplies and Prices

In conversation with someone who, as a senior NGO executive in international development and food aid, is well situated to respond on the question of rising commodity prices for food globally.  I asked specifically about the Wall Street Journal news story a few days ago on this topic, which reported:

Prices of corn and soybeans leapt 4% Wednesday and wheat gained 1%, continuing the broad rally in commodity prices that began in June. With yesterday’s gains, prices of corn futures contracts are now up 94% from their June lows; soybeans are up 51% and wheat is up 80%.

The USDA’s revisions reflect the impact of dry weather in South America and floods in Australia, which have compounded supply constraints that first started to emerge in the middle of last year, when a drought in Russia ravaged that country’s wheat fields. The agency also cut estimates for U.S. harvests of corn and soybeans.

At the same time, demand is increasing. The USDA said ethanol producers likely will increase their use of corn, and consumption by emerging market countries continues to be strong.

Prices of many agricultural commodities are still below the levels that sparked food riots in poor countries around the world in 2008. But economists see few signs that prices for grain, livestock and cotton will cool significantly anytime soon, signaling potential headaches for consumers and food companies.

I was told that, if anything, this article understated the problem, at least if consumers in poor countries were taken into account and that food riots akin to those of 2008 would be unsurprising.  I was asked in turn why the US continues to subsidize ethanol, for which I had no good answer.

(Update:  Take a look at this blistering but, in my view, quite persuasive opinion piece in the Asia Times by Hossein Askari and Noureddine Krichene, arguing that the food price inflation is a result of wrong Fed policies of monetary easing.  On the basis of my conversations last week, I think there are independent issues of supply, and the miscalculations of a just-in-time food inventory and what, again in my view, is the bad policy of raising prices on a major food commodity in order to turn it, via a government subsidy, into a fuel.  But those supply explanations are not at all inconsistent with Askari and Krichene’s argument about Fed monetary policy exporting food, and other, inflation globally.)