Concerns over food inflation as harvests fail

By Javier Blas and Chris Flood in London - Financial Times

Published: December 11 2007 19:49 | Last updated: December 11 2007 19:49

The global economy is facing a second wave of food inflation after the US agriculture department on Tuesday warned of significant falls in stocks of corn, wheat and soyabean and heavy demand.

Officials forecast US wheat stocks would shrink to their lowest level in 60 years, dropping from 312m bushels to 280m by the end of the 2007-08 crop year.

The US is the world’s biggest exporter of wheat and importing countries are bidding heavily for its crops as other exporters cut supplies.

Cold weather damaged crops in Argentina and drought affected Australia’s wheat production. Flooding also damaged European crops.

Michael Lewis, of Deutsche Bank in London, said the decline in stocks and rising shortages in large parts of Asia suggested 2008 “could deliver another year of . . . price shocks”.

Corn and soyabean stocks will also be lower than expected as demand from emerging countries rises in spite of record prices.

Greg Wagner of Horizon Ag Strategies in Chicago said supplies of soyabeans and wheat had now tightened to “very uncomfortable levels”.

Chicago wheat futures for March 2008 delivery rose to $9.29 a bushel, just short of the record $9.61 last summer. Prices later fell on profit-taking.

Corn prices for March rose to $4.19 a bushel, the highest in six months, while soyabean futures for January jumped to a fresh 34-year high of $11.32 a bushel.

Gavin Maguire of Iowa Grain in Chicago said the lower stocks confirmed the view that strong global demand was eating into the world’s supplies of agricultural products.

Agricultural commodities analysts have warned that rising prices for corn, wheat and soyabean will force up feedstock costs for farmers, leading to higher meat, poultry and milk prices for consumers.

Food prices are boosting inflationary pressures just as central banks are trying to cut rates to cushion their economies from the effect of the credit squeeze.

China said on Tuesday that inflation had reached an 11-year high at 6.9 per cent in November, boosted by a 18.2 per cent jump in food prices.

Eurozone inflation recently rose to a six-year high propelled by high oil and food prices.