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Food Prices Projected To Reach Record Highs

Fri, 09/21/2012 - 9:39am

ST. LOUIS (RABO AGRIFINANCE) Food prices are once again on the rise, fueled by the lingering U.S. drought and water scarcities in South America and Russia. According to a report released Thursday by the Rabobank Food & Agribusiness Research and Advisory (FAR) group, such prices are likely to reach an all-time high the first quarter of 2013 and will present a challenge for the livestock industry.

The report, titled “Re-entering Agflation” highlights how the affected commodities are those used in animal feeds and not considered core food staples of the world’s developing economies – a striking difference from 2008, when low wheat inventories and restricted rice exports held back the availability of those commodities for consumers.

“The impact on the poorest consumers should be reduced this time around, as purchasers are able to switch consumption from animal protein back towards staple grains like rice and wheat,” said Luke Chandler, Global Head of Agri Commodity Markets Research at FAR and author of the report. “In developed countries – especially the U.S. and Europe – where meat and corn prices elasticity is low, the knock-off effect of high grain prices will be felt for some time to come.”

Chandler notes that the impact of higher grain and oilseed prices will be significant for the livestock sector as it is likely to be squeezed by higher feed costs. The long production cycles of livestock, notably cattle, will keep pressure on rising food prices as herds take the time to rebuild. The full effect of this commodity price rally and the subsequent lower meat and milk output, will be a multiyear rebuilding of herds, which will keep price levels high. Meanwhile, beverages and value-added product sectors will be less affected as grains and oilseeds constitute a smaller part of the overall production costs. The report estimates that the Food and Agricultural Organization (FAO) Food Price Index will rise by 15 percent by the end of June 2013. Rabobank expects prices – particularly for grains and oilseeds – to remain at high levels for at least the next 12 months.

The report also notes that stockpiling and export bans are definitely possible for the end of 2012 and 2013 as governments try to protect consumers from rising food prices. Rabobank suggests that such efforts will be counterproductive and cause even higher spikes in commodity and food prices.

A full copy of the report is available to the media upon request. Please note that the report is for informational purposes only and may not be reproduced, distributed or published in whole or in part, for any purpose, except with prior written consent by Rabobank International.

Rabo AgriFinance is a leading provider of financial services for agricultural producers and agribusinesses in the United States outside of California, adding value with industry expertise, client-focused solutions and long-term business relationships. The Rabo AgriFinance nationwide network of relationship managers, crop insurance and risk management specialists offers a comprehensive suite of services, including loans, crop insurance and sophisticated risk management products

Rabo AgriFinance is a division of the Rabobank Group, the premier lender to the global food and agricultural industry and a financial services leader providing commercial, retail and agricultural finance solutions in 48 countries around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the world’s largest and safest banks. www.rabobankamerica.com

The Rabobank International Food & Agribusiness Research and Advisory (FAR) group is a global team of more than 80 analysts who monitor and evaluate global market events that affect agriculture worldwide. This international team works to gather key insights into commodity markets; conduct in-depth analysis of the factors that drive sector success (or failure); and look at the megatrends that ultimately influence clients’ capital strategy. These analysts are internationally respected experts in everything from protein to produce, inputs to oilseeds, and their knowledge is shared regularly with Rabo AgriFinance customers.

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