x Abu Dhabi, UAETuesday 25 July 2017

Disasters push price of food to new highs

Damaged crops and increasing imports to China have put prices on a steep upward curve.

Wheat futures for December delivery on the Chicago Board of Trade are up 36 per cent from March.
Wheat futures for December delivery on the Chicago Board of Trade are up 36 per cent from March.

The price of food is set to soar to levels not seen since 2007 as natural disasters and increased demand from China hit supplies and crops around the world, a study by Morgan Stanley says. World food prices rose sharply in 2007 as changing diets among the growing middle class in Asia combined with drought and higher fertiliser prices to hit world food stocks. Between 2007 and 2008, average prices for wheat rose by 136 per cent, corn by 125 per cent and soya beans by 107 per cent, according to Bloomberg.

Today, the prices of wheat, soya beans and corn are rising almost as sharply as they did three years ago as bad weather and growing demand again come to the fore, Morgan Stanley said. On the Chicago Board of Trade, corn futures traded 10.6 per cent higher last week to US$5 a bushel for the first time since December 2008. Wheat futures for December delivery on the exchange traded at $7.39 a bushel on Friday, up 36 per cent since March. Soya beans for November delivery on the exchange was trading at $10.69 a bushel on Friday, up 13 per cent since March.

"Where we are sitting today reminds me a lot of 2007 in terms of the momentum prices had and why they were moving," said Vincent Andrews, a packaged food analyst at Morgan Stanley. "This isn't as bad but similar." Wheat futures soared last month as a result of disruptions in supplies from Russia. The fourth-largest producer of wheat has banned exports of the crop until next year. Dry weather in the US, the largest producer of corn in the world, has driven corn prices higher. The US department of agriculture estimated corn reserves as a percentage of consumption would fall 8.3 per cent before next year's harvest.

China, importing corn for the first time since 2004, adds further pressure on world corn reserves, said Mr Andrews. "Speaking to different analysts will give you a different amount of reserves required to fulfil demand from China alone," he said. "It's clear we need to plant more corn next year to maintain current levels of stocks to use and that means we're probably going to borrow the acres from soybeans."

Soya bean futures have moved sharply higher as a result of rising corn prices and further data on demand from China. "It's kind of like a game of musical chairs. We have a fixed amount of acreage and because we had production disappointments combined with demand improvements, we're stretched," Mr Andrews said. "We are returning to the trend line from 2007, exacerbated by difficulty in supply," said Hussein Allidina, the head of commodity research at Morgan Stanley.

"What the market is waking up to is the last year and a half to two years, we had ideal growing conditions, record crops in the US and that's not sustainable. It's more likely to have bad weather than good weather." Economists in the region agree food prices are higher but are sceptical about them reaching 2008 levels. "We are seeing a rise in food prices in certain parts of the world but we don't have the same supply issues as we did in 2007 where rice was virtually wiped out," said John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh.