Food Prices Likely to Stay High
Growing demand for food, livestock feed and biofuels leaves little to rebuild tight stocks
Farmer Lu Keshuang turns the soil of his drought-affected field located 80 kilometres north of Beijing. The drought could impact world wheat prices.
Last updated on: March 31, 2011 8:00 PM
New data from the U.S. Department of Agriculture indicates that domestic food prices are likely to remain high in the coming months and could go higher.
With the UN food agency's price index at its highest level since records were first kept in 1990, experts are eager for information on what farmers will produce in the coming growing season. The U.S. is the world's leading producer of maize and soybeans, and the number-three wheat producer.
The U.S. Department of Agriculture's new report on prospective plantings shows farmers plan to grow maize on about 37 million hectares of land this year, 5 percent more land than last year.
"That's a lot. That's really going all-out when it comes to planting corn," says John Anderson, an economist with the American Farm Bureau Federation, adding it would be the second-largest maize acreage on record. "With that big number, though, we're not expecting to see carryover increase a whole lot because use is just very, very strong."
Carryover stocks of maize from last season are currently extremely low, according to another new USDA report. A growing demand for food, livestock feed and biofuels means there is little left over to rebuild tight stocks.
"When there's not much left in reserve, the market becomes fairly volatile," says Anderson.
That means not only will prices likely remain high, the market will be very sensitive to bad weather or any other factor that affects supplies or demand. And wet weather in parts of the U.S. maize belt already has experts concerned about planting delays. Weather is also a concern for the upcoming U.S. wheat crop. While wheat stocks are up about five percent from last year, and planted area is projected up about 8 percent, Kansas State University economist Dan O'Brien remains cautious.
"It's not what was planted for winter wheat, it's what may end up being harvested," he says. "And that could be appreciably lower and at lower yields than we've been seeing the last several years."
Bad weather already has affected the U.S. winter wheat crop and may affect spring planting as well.
The U.N. food agency raised concerns about the wheat crop in China, the world's top producer, after a serious drought this winter. Those concerns eased somewhat after precipitation fell in some major producing regions, but experts say the crop's current condition is unclear.
Soybean stocks and prospective plantings both declined in the USDA reports. That means prices are unlikely to come down in the short term. Economist Brandon Kliethermes, with IHS Global Insight, says with prices so high, farmers are likely to find more soybean acres to plant. With average weather, he says, that could bring prices down this summer.
"Now, in the event that we have an extremely wet spring or any type of early weather patterns, we could very well see these prices peak up to their 2008 levels."
Another factor that helped push prices up in 2008 was high energy prices. Mike Zuzolo with Global Commodity Analytics, notes that while they are still below their 2008 peak, crude oil prices are above $100 a barrel.
"What that does is, it sets up a 2008-like scenario now, with high food, high energy prices as we go into the spring and mid-summer," says Zuzolo.
Price spikes in 2008 touched off food riots in a number of countries around the world. High food prices have been a factor in unrest in the Middle East this year. And experts are concerned about the possibility of more unrest as food prices remain high.