Record cereal prices are prompting fears of escalating food costs around the world and drawing comparisons with the 2007-2008 crisis, when food riots broke out in 30 countries.
The US is suffering one of the worst droughts in more than 50 years, withering its corn crop. The US is crucial to global food markets as the world’s largest exporter of corn, soybeans and wheat, accounting for one in every three tonnes of the grains traded on the global market.
Forecasts are showing no sign of an end to the drought, with corn prices hitting a record high of US$8.16 a bushel on Thursday, while soya beans hit a high of US$17.17.
Nick Higgins, commodity analyst at Rabobank, said the impact of the weather on corn and soyabean crops is much worse than five years ago, but so far traders have not pushed up prices as dramatically.
“The speculatively driven highs reached in the wheat crop during that period may not be reached, but, in terms of damage to the actual crops, it’s worse,” Higgins said.
On Wednesday, US Secretary of Agriculture Tom Vilsack pushed corn prices even higher when he said the situation was not bad enough to warrant a reduction in government quotas for biofuels, specifically ethanol, which is typically made from corn and is a factor in keeping prices high.
Ruth Kelly, food policy adviser to the development charity Oxfam, said: “The toxic combination of a heatwave in the US, which is decimating corn harvests, and the unwavering global demand for biofuels, is again pushing the price of basic food stuffs higher and higher.”
Richard Volpe, a research economist with the US Department of Agriculture, said prices of beef, pork, poultry and dairy products could be the first to soar.
For now, experts say the price rises are unlikely to cause food shortages.
Abdolreza Abbassian, senior grains economist at the UN Food and Agriculture Organization in Rome, said: “The problems this time around start with corn, which is an important crop, but not a primary food security crop like rice or wheat. There is still hope.”
Wheat prices have hit US$8.40 a bushel in the recent rally, but they remain much lower than the 2008 record of US$13.345. Rice is trading more than 40 percent below its high in 2008.
Abbassian said wheat supplies would come under pressure if the corn crop got much worse, as wheat would be used to feed animals instead of corn.
“If we have even more disastrous results on corn, the pressure on wheat will [increase], with prices rising much further. The likelihood then is that high wheat prices will spill over into rice,” he said.
Although global wheat stocks are not low, there are growing concerns over production because of erratic weather conditions in Russia.
Hussein Allidina, head of commodities research at Morgan Stanley, said: “The Russian wheat harvest is in full swing and flash flooding in the south is temporarily limiting exports and stoking quality concerns.”
The concern then is if Russia starts worrying about domestic supply of wheat, it may limit exports, driving prices even higher.