Just days ago, the FAO (Food and Agriculture Organization) Food Price Index (FFPI), a measure of the monthly change in international prices of a basket of food commodities, printed near a record high, a level not seen in more than a decade. We theorized last week that food prices were "set to hit a record high soon. "
We now expect the Rome-based FAO index could be heading for a record high sometime this quarter and or as early as this month due to a rise in cooking oil prices. Malaysian palm oil futures powered to another all-time high late last week.
"This matters because palm oil is the world's most-consumed edible oil and is used in everything from cooking to chocolate, lipstick, and fuel," according to Bloomberg. Higher palm oil prices could increase global food inflation to a record high when the next FFPI is released.
Bloomberg explains the dynamics behind soaring edible oil prices.
Supplies of soybean oil are under threat because heat and drought have cut soybean production in Brazil, Argentina and Paraguay. That followed a canola crop disaster in top producer Canada last summer. So little relief is in sight for consumers until the U.S. and Canadian oilseed harvests later this year. Concerns are also rising about sunflower oil because any potential conflict between top producers Russia and Ukraine could reduce supplies from the Black Sea.
All this means is that the only way for food prices is up. The United Nations index climbed close to a record in January driven by more expensive vegetable oil and dairy prices. A further rise this month could potentially push prices beyond that mark to a fresh all-time high. -Bloomberg
The threat of record-high food prices isn't hitting everyone equally. Lowest income households are crushed the most worldwide. More than a year ago, everyone's favorite permabear, SocGen's Albert Edwards, explained soaring food inflation has the risk of triggering social upheavals, especially in emerging market countries first.