Global food prices hit a record high last month, the UN said yesterday, warning that fresh oil price spikes and stockpiling by importers keen to head off popular unrest would hit already volatile cereal markets.
Rising food prices are a growing global concern, partly fueling the protests which toppled the rulers of Tunisia and Egypt in January and last month, which in turn unleashed unrest in North Africa and the Middle East from Algeria to Yemen.
The Food and Agriculture Organization’s (FAO) 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.
Agency economist Abdolreza Abbassian said global food prices were likely to remain close to record highs until the condition of new crops is known, adding that jumps in the oil price could have a bigger impact on grain markets, which have seen benchmark US wheat prices surge 60 percent in the year to this month.
“Until we know about new crops, that means waiting at least until April, our view is don’t expect any major corrections in these high prices. Expect even more volatility now that oil has joined the crowd,” Abbassian said by telephone.
Oil prices recently hit two-and-a-half-year highs, nearing records set in 2008, with markets spooked on concern that North African and Middle East unrest would choke key supplies.
Stockpiling by some major grain importers “beyond country’s normal needs” to head off political unrest and secure supplies for 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 last month, the record in real and nominal terms, up 2.2 percent from January’s record and rising for the eighth month in a row.
However, James Dunsterville, head analyst at Agrinews, pointed to a fall in some grains markets in the second part of last month.
“We have spikes in oil prices because people are worried about supplies in the Middle East, but if you look at corn and soybeans, they did not follow,” Dunsterville said.
Corn and soybeans usually tend to follow crude oil prices closely because they are used as a commodity to produce biofuels, with demand from that sector fueling the 2008 spike.
Abbassian said rising oil prices could help biofuels regain soon a major role they played in driving food prices in 2008.
FAO said in yesterday’s statement it expected a tightening of the global cereal supply and demand balance last year and this year.
“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.
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