The price of tea (corn) in China (Algeria)

CC photo by Flickr user Dodo-Bird

Prices of food staples around the world are getting higher as supplies tighten:

The world has moved a step closer to a food price shock after the US government surprised traders by cutting stock forecasts for key crops, sending corn and soyabean prices to their highest level in 30 months.

The price jump comes after the UN’s Food and Agriculture Organisation warned last week that the world could see repetition of the 2008 food crisis if prices rose further. The trend is becoming a major concern in developing countries.

While officials are drawing comfort from stable rice prices, key for feeding Asia, they warn that a sustained period of high prices, especially in grains such as wheat, would hit poorer countries. Food price hikes have already led to riots in Algeria and Mozambique.

“Stocks of corn and soyabean are at incredibly tight levels … and the markets are surging to incredibly strong prices,” Chad Hart, agricultural economist at Iowa State University, said.

….

In Chicago, the price of soyabeans rose as much as 5.2 per cent to $14.20½ a bushel, the highest since late 2008. The USDA said that domestic stocks-to-demand would drop to the lowest point in nearly half a century.

Corn prices jumped 5 per cent to $6.37 a bushel, the highest level since July 2008.

The good news (if you can call it that?): Corporations in the agriculture business making tons of cash:

The boom in agricultural prices has lifted the outlook of the agribusiness sector in the US. Cargill, the world’s largest trader of food commodities, said its profits had tripled year-on-year during the second quarter of its fiscal year.

The shares of Deere & Co, the world’s largest manufacturer of tractors and combines, surged 2.3 per cent, approaching an all-time high. But food companies such as Nestlé fell as analysts said they would struggle to pass rising wholesale costs to consumers.

Matt Yglesias notes that U.S. policy is probably making it worse:

A good rundown from Lester Brown suggests a few ways in which American policy is making things worse. Most notably, ethanol subsidies aren’t a good way to clean the environment, but they’re a great way of raising the price of agricultural commodities. Farmers like it, but people who need to eat suffer. Similarly, pro-sprawl and anti-density policies incentivize the redevelopment of farmland as exurbs. Nice if you’re an oil-exporter, not so nice if you eat food.

In the long run, higher prices will probably lead to higher crop yields and it’ll all even out. But in the interim expect hungry people and food riots.

Related posts:

1. How much do we spend on food?
2. How much of “Made in China” is made in China?
3. The price of milk smack-down