Food Price Inflation: Where Are The Risks?
BMI View: We continue to expect CBOT grain prices to generally average lower in 2014 than 2013 as supply improves and demand growth remains relatively subdued. However, we highlight some key flashpoints that could drive food prices higher in the coming months. In particular, we see upside risks to prices from prospects for stronger ethanol production, the possible return of El Niño, improved livestock production and trade disruptions. The effect of these issues could be exacerbated by speculative sentiment, which has been rebounding and shows room for further upside.
After three major food price spikes in the preceding five years, CBOT grain prices (which include corn, wheat, soybean and rough rice) generally declined sharply over 2013, falling by an average of 25%. Only prices for rice (which is relatively lightly traded) managed to buck the trend. A key reason for the collapse in prices was a massive rebound in grain supplies during the 2013 calendar year, brought about by record high plantings (particularly in the Americas). As a result of the supply surge, all four major grains recorded a surplus in 2013/14, grain prices (particularly corn and wheat) were some the worst performers in the entire S&P GSCI commodities universe, and food prices registered the most significant level of deflation since the global financial crisis. Analysts' forecasts were slashed continually throughout the year, and speculators scrambled for the exits. The fall in CBOT prices had a significant impact on food prices globally as the US is the world's largest food net exporter and most of the major grain contracts globally are based in the US.
A Significant Rebound In Grain Production
|High Prices, High Plantings|
|S&P GSCI Grains Index With Planting Season|