When two months ago, in the first week of January, we observed that the U.N. Food and Agriculture Organisation's Food Price Index had hit a record we said: "The last time food prices hit ridiculous levels, the immediate outcome
was global food riots in places such as Haiti and Bangladesh. Which is
why distributors of riot equipment in the world's poorest countries may
be in for a bumper crop as the Food and Agriculture Organization has
just announced that world food prices have just surpassed the previous
record last seen in 2007-2008." Little did we know just how prophetic this statement would turn out to be. Well, the FAO has just released its latest food price update and as expected, it is a new all time high. The U.N. Food and Agriculture Organisation's Food Price Index hit its second straight record last month, further passing peaks seen in 2008 when prices sparked riots in several countries, driven by rising grain costs and tighter supply." And with oil now joining food, which means that the inflationary vicious spiral is now on, it is only a matter of time before ever more hungry countries join the wave of revolutions, now that Tunisia and Egypt have shown it can be done. On the other hand, our expectation is that the IMF will promptly seek to put out any fires before they become infernos, with the US taxpayer reeling from the double whammy of Bernanke's inflationary policy consequences: once at home, and once by subsidizing foreigners.
Reuters with an interactive chart of food prices.
And some more from Reuters:
Oil prices recently hit 2-1/2 year highs, nearing records set in 2008, with markets spooked on concern that North African and Middle East unrest would choke key supplies.
Farmers depend on fuel to run agricultural machinery, while dry bulk shippers are heavy oil users, costs which are passed on to food buyers.
Spiraling shipping costs for commodities threaten to drive food inflation even higher as nations from Asia to the Middle East and Africa scramble for supplies, analysts say.
Stockpiling by some major grain importers "beyond country's normal needs" seeking to head off political unrest and secure supplies on domestic markets, has been adding uncertainty and volatility to the markets, Abbassian said.
"Political instability in the regions and countries affects the markets by adding uncertainty: will a country buy or not buy, why it had bought so much now ... those things are disruptive to the normal trade," he said.
The FAO, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, averaged 236 points in February, the record in real and nominal terms, up 2.2 percent from January's record and rising for the eighth month in a row.
Additionally, heavy stockpiling, as has been the case recently, will likely exacerbate matters even futher:
Bigger grain stocks now than in 2007/2008 are serving as a buffer to prevent the rerun of the food crisis, but the FAO has been concerned about the heavy use of stocks, Abbassian said.
FAO said in Thursday's statement it expected a tightening of the global cereal supply and demand balance in 2010/11.
"In the face of growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains, " the agency said.
In this geopolitcally uncertain environment, the two key variables remain Saudi Arabia and China. And while China continues to depress the fair value of rice as we disclosed previously, most likely through political channels that ultimately feed into commercial CFTC speculator trading desks, thus keeping the situation modestly under control, the Saudi-Bahrain connection remains tenuous. In fact, today Bahrain may steal the spotlight, after the opposition not only called for a removal of the government, but has announced a mass protest for Friday.