Commodity prices increase
Most of the basic food commodity prices have been rising – things like corn, wheat, soy and rice.
The International Monetary Fund has helpful research on commodity prices rising, and global impacts.
“Commodity Price Surge Boosting Inflation, Hitting Budgets,” July 1, 2008. IMF Survey Magazine online.
A report from Advanced Economic Solutions details some of the rising commodity prices, why they have risen, and what the impacts are:
“Rising agricultural commodity prices are contributing to the highest rates of food inflation in decades. The underlying driver of the higher commodity prices in past years (2002?2006) included global economic expansion, rising energy prices, as well as the weak dollar. While these price drivers remain intact today, the rapid expansion in the use of corn to produce ethanol is currently the most significant factor driving corn and other agricultural commodity prices to record levels.”
Recently, Pilgrim's Pride (chicken producer) blamed part of its poor quarterly performance on high feed cost: "Pilgrim's Pride said in a statement the big loss for its fourth quarter, which ends Saturday, is in part attributed to high costs for animal feed, which is made with corn and soybeans."
'Pilgrim's Pride to Post 4Q Loss; Shares Plummet," September 23, 2008. Associated Press.
Why have commodity prices been increasing?...
Rising global demand for meat and commodities
Rising incomes in developing countries such as China and India have led to rising demand for foods such as meat. This rise in demand not only increases prices for meat, but also increases demand and prices for the grain inputs used to feed livestock.
The following report by the USDA Economic Research Service provides an excellent overview of the numerous factors contributing to high food commodity prices:
“Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices,” July 2008 (revised version). USDA Economic Research Service, WRS-0801.
Abstract: “World market prices for major food commodities such as grains and vegetable oils have risen sharply to historic highs of more than 60 percent above levels just 2 years ago. Many factors have contributed to the runup in food commodity prices. Some factors reflect trends of slower growth in production and more rapid growth in demand that have contributed to a tightening of world balances of grains and oilseeds over the last decade. Recent factors that have further tightened world markets include increased global demand for biofuels, feedstocks and adverse weather conditions in 2006 and 2007 in some major grain- and oilseed-producing areas. Other factors that have added to global food commodity price inflation include the declining value of the U.S. dollar, rising energy prices, increasing agricultural costs of production, growing foreign exchange holdings by major food-importing countries, and policies adopted recently by some exporting and importing countries to mitigate their own food price inflation. This report discusses these factors and illustrates how they have contributed to food commodity price increases.”
Changing weather conditions and episodic weather problems (floods, droughts, etc.)
- Multi-year drought in Australia
- Floods in the U.S. Midwest
- Hurricanes in the U.S.
“Australia’s Food Bowl Lies Empty,” March 11, 2008. Staff writer. BBC News
“Corn Hits Record for 7th Day on Midwest Floods,” June 13, 2008. Stevenson Jacobs. Associated Press Online.
"Louisiana Loses Most of its Sweet Potato Crop," September 25, 2008. Greg Hilburn. Shreveport Times.
"Ike Brings Down More Rice Crops," September 16, 2008. Food Product Design news.
Fuel/energy costs rising
The results of rising fuel/energy costs lead to increased cost of producing and transporting food.
"Farmers Develop Ways to Offset Diesel Fuel Costs," August 9, 2008. Ithaca Journal, 4C.
"Falling Price of Oil Offers Upbeat Note in a Crisis," October 3, 2008. Jad Mouwad. New York Times, C1.
Growth of the biofuel industry
A number of analysts suggest that growth in the biofuel industry increases demand for and prices for commodities such as corn (U.S.), sugarcane (Brazil), rapeseed, soy and other biofuel crops.
Several summaries of the industry, subsidies, etc. include:
“The Role of Biofuels and Other Factors in Increasing Farm and Food Prices,” DATE. Keith Collins. The report is supporting materials for a review conducted by Kraft Foods Global Inc.
From the Executive Summary of Collins’ report: “This paper reviews various studies that have examined the relationship between corn used in ethanol production and corn prices. They suggest increased corn demand for ethanol could account for 25 to 50 percent of the corn price increase expected from 2006/07 to 2008/09. Another analysis presented in the paper suggests that ethanol could account for 60 percent of the expected increase in corn prices between 2006/07 and 2008/09 when market demand and supply are inelastic with respect to price…”
Another broad summary, see:
“Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices,” July 2008 (revised version). USDA Economic Research Service, WRS-0801.
For a different view, see:
“Schafer: No Concern about Food Shortages,” April 24, 2008. Margaret Stafford. Associated PressState & Local Wire.
This information is presented as examples of various viewpoints on the role of the biofuel industry in food inflation.
Global trade and the value of the US dollar
- Countries are importing more US goods, especially rice.
- Some countries have severely limited or banned rice exports, driving up global rice markets.
For information on agricultural trade from the USDA see this website: http://www.ers.usda.gov/Browse/TradeInternationalMarkets/
All of the above information is presented as evidence of research and public opinion. We do not claim to list all of the relevant factors in food inflation. Nor do we endorse any specific opinion or research.
