Global food price threat recedes: US report
September 14, 2012, 12:21 am TWN
LONDON -- The third global food price spike in four years may have peaked after a summer of stunning increases on cereal markets, as a U.S. government report on Wednesday raised hopes that a full-blown food emergency could be averted.
Fears of unrest and hunger seen in the 2007-08 crisis emerged as the worst U.S. drought in over half a century and persistent dryness in other key grain producing countries sent corn and soybean prices to successive record highs.
But the U.S. Department of Agriculture (USDA) on Wednesday cut its forecast for the country's corn crop by less than one percent, indicating the worst drought in U.S. Midwest in 56 years may have done less damage than anticipated.
“The situation seems pretty comfortable compared to what many people feared,” said Abdolreza Abbassian, senior economist and grain analyst at the United Nations Food and Agriculture Organization (FAO).
The U.S. drought had also sent wheat prices up by more than 50 percent and prompted calls for an emergency meeting of Group of 20 nations and joint action to calm markets.
“The concern we heard about earlier on was related to a worsening of the situation and this report does not draw that conclusion,” Abbassian said.
U.S. corn prices were trading around US$7.68 a bushel on Wednesday, down nearly 10 percent from a record high of US$8.49 a bushel set on Aug. 10.
The most recent food price surge revived memories of the 2007/2008 crisis which the FAO estimated added 75 million to the number of chronically hungry people in the world. Other estimates put the increase at up to 160 million.
Robert Thompson, a food security expert at the Chicago Council on Global Affairs and professor emeritus at the University of Illinois at Urbana-Champaign, said grain prices probably climbed higher than they needed to, based on supply and demand.
“Probably we overshot a little bit on the scare a month or so ago but it sent a strong signal that we were going to have to ration a smaller crop,” he said. “It definitely got everybody's attention and started changing intentions in the livestock and poultry sector. It was a shot heard around the world.”
Rich Nelson, chief strategist for Allendale, said the corn market had probably peaked.
“Drought rallies are based on the question of identifying production. Once that question is answered, the rally is over,” he said.
Some analysts and traders were still wary of calling an end to the price rises, noting that the USDA may have been reluctant to cut their corn crop forecast too aggressively with the corn harvest only about 15 percent complete. Major revisions often come in the October report.