Record cereal prices stoke fears of global food crisis

Severe drought in US - largest exporter of corn, soya beans and wheat - pushes up prices and revives memories of 2007-08 riots

Record cereal prices are prompting fears of escalating food costs around the world and drawing comparisons with the 2007-08 crisis, when food riots broke out across the globe.

While the UK is drowning in rain, the US has suffered one of the worst droughts in more than half a century, withering the country's corn crop. The US is crucial to global food markets as the world's largest exporter of corn, soya beans 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 $8.16 (£5.19) a bushel on Thursday, while soya beans hit a high of $17.17.

The move in prices has revived memories of the food crisis of 2007-08, when food riots broke out in 30 countries.

Nick Higgins, commodity analyst at Rabobank, said the impact of the weather on corn and soya bean 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, the US agriculture secretary 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, Oxfam's food policy adviser, 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 the time being, experts say the price rises are unlikely to cause food shortages. Abdolreza Abbassian, senior grains economist at the UN Food and Agriculture Organisation 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 $8.40 a bushel in the recent rally, levels last seen in the price spike of 2010, but they remain much lower than the 2008 record of $13.345. Rice is trading more than 40% 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."

Although global wheat stocks are not low, there are growing concerns over production due to 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.

Allidina said food price inflation was a particular concern to the global economy, as it limits the ability of emerging markets to provide any kind of stimulus to drive a recovery.

Graph: Food price forecasts
Graph: Food price forecasts Photograph: Graphic

Karen Ward, senior economist at HSBC, said: "What the world economy really needs right now is a break. Any inflationary pressure, particularly that stops the emerging world loosening policy and providing the boost to the global economy, would be a problem."


Josephine Moulds

The GuardianTramp

Related Content

Article image
Global food crisis forecast as prices reach record highs

Cost of meat, sugar, rice, wheat and maize soars as World Bank predicts five years of price volatility

John Vidal, environment editor

25, Oct, 2010 @2:26 PM

Article image
US drought will lead to inflation and higher food prices, says report

HSBC warns that central banks are unlikely to raise interest rates to counter higher living costs due to softening labour market

Larry Elliott, economics editor

20, Aug, 2012 @5:29 PM

Article image
Global food crisis: the speculators playing with our daily bread

Felicity Lawrence: As food prices reach record highs, how much is the speculation in agricultural commodites to blame?

Felicity Lawrence in Chicago

02, Jun, 2011 @6:26 PM

Article image
Food shortages could force world into vegetarianism, warn scientists

Water scarcity's effect on food production means radical steps will be needed to feed population expected to reach 9bn by 2050

John Vidal, environment editor

26, Aug, 2012 @6:00 PM

Article image
Global food crisis: Argentina in battle with multinational grain giants | Felicity Lawrence in Buenos Aires

Argentina accuses big four of avoiding tax – a claim all the companies deny

Felicity Lawrence in Buenos Aires

01, Jun, 2011 @5:59 PM

Food crisis in the Sahel: unlearned lessons | Editorial

Editorial: Millions in the eastern Sahel are facing famine, just as they did in 2005 – yet the response from some major aid donors has been no swifter than it was then


02, Aug, 2010 @11:23 PM

Article image
US politicians must regulate finance to tackle the drought and food-price crisis | Raj Patel
Raj Patel: US leaders worked hard to tackle the 1930s drought and food crisis. Today they are supine, offering the hungry only prayers

Raj Patel

24, Jul, 2012 @8:30 PM

Article image
Global food crisis will worsen as heatwaves damage crops, research finds

Harvests will fall dramatically during severe heatwaves, predicted to become many times more likely in coming decades

Damian Carrington

13, Jan, 2013 @6:00 PM

Article image
Africa famine: soaring food prices intensifying crisis, report warns
World Bank says shortages and near-historic prices for staple crops have contributed to the crisis in the Horn of Africa

Suzanne Goldenberg, US environment correspondent

16, Aug, 2011 @10:24 AM

Article image
Oxfam reveals global food firms' gaping ethical shortfalls

The charity finds Nestlé, Mars and Coca-Cola fail to protect farmers, local communities and the environment

Damian Carrington

26, Feb, 2013 @6:00 AM