Just as the global economic outlook is bullish and commodities are soaring, people seem to be overlooking one of the most basic categories of commodities: Food.
Food is the world’s most important source of food and feed. Today, food prices are on the rise.
The S&P Global Agriculture Index rose for the ninth consecutive month, reaching its highest level in seven years. Despite the low base, the last Time there was such a rapid increase was 10 years ago.
As food prices have risen, so have the prices of virtually all food products, including vegetables, cooking oil, sugar, dairy products and meat.
While recent bumper crops have helped ease the short-term pressure of rising food prices, the long-term pressure remains.
Rabobank believes that the current trend of rising food prices shows that no one had the foresight, fortitude or financial resources to stockpile enough food during the past years when food supplies were plentiful.
Of course, there are more factors to the current rise in food prices. Rabobank concludes.
stocks of grain exporters have fallen rapidly to a seven-year low.
The difficulty of increasing the supply of grain quickly.
Unfavorable weather conditions.
Countries are prioritizing the supply of their own food.
Rising logistics costs, especially freight costs.
Speculation on Wall Street.
Low food stocks
By mid-2020, when demand surges, grain exporters around the world, sell off large inventories.
Currently, stocks of grains (mainly corn) and oilseed crops (mainly soybeans) in the U.S., the world’s largest grain exporter, are down nearly 30% year-over-year. Rabobank expects that in this year, the U.S. exporters will not see a significant improvement in their stocks.
Grain will soon struggle to ramp up supplies quickly
In the coming months, although there is likely to be a bumper crop around the world, arable land constraints are limiting the increase in supply.
For example, the U.S. can only increase its summer sown area by about 5%.
Adverse weather conditions
Global food is still largely “weather dependent.
Today, large areas of South America are too dry or too wet; meanwhile, much of the U.S. spring growing region is facing severe drought.
Countries are prioritizing their own food supplies
Protectionist trade policies also pose additional risks to global food supplies.
Many countries are prioritizing securing supplies for their own markets. For example, Russia, the world’s largest wheat exporter, has implemented a grain export tax. Ukraine, Europe’s key granary, and Argentina, the world’s largest feed exporter, have also begun setting export quotas.
Rising logistics costs
Rabobank found that the new crown Epidemic, extreme weather are driving rapid changes in food demand, while suppliers are unable to accurately anticipate or respond in a timely manner.
Freight prices for containers have jumped to record levels, and bulk cargoes have risen sharply, delaying shipments from reaching their destinations in time: higher transportation costs are also eroding exporters’ profits.
Speculation on Wall Street
Another factor fueling the rise in grain prices has to do with Wall Street.
Wall Street funds already hold by far their largest net long positions in soybeans and corn. Financial market investors now hold grain, oilseed and livestock contracts worth nearly $50 billion net, or 35 percent of the total value of all U.S. agricultural exports in 2020.
Recent Comments