The Food and Agriculture Organisation (FAO) Food Outlook report published a couple of days ago confirms that wheat prices should decline in the new season. I thought to myself: Wow! That's great news! I promptly logged onto the FAO site (I'm a regular there) and I got this:
International prices of most agricultural commodities have started to decline, but they are unlikely to return to the low price levels of previous years, Food Outlook reports. The FAO food price index has remained stable since February 2008, but the average of the first four months of 2008 is still 53 percent higher when compared to the same period a year ago.
And this:
Increased hunger likely in some poor countries
I smell a rat! Some financial entities (read speculators), like the oil producers, are making a killing. Somewhere.
Some weeks ago I wrote a piece on how traders are playing some kind of "casino capitalism" by speculative buying that is helping to drive food prices higher. I'm convinced that soaring wheat prices are driven partially by greed, but can't prove it. Yet.
The FAO reports that favorable weather conditions and a greater confidence in more plentiful supplies in the new season have driven prices down sharply in recent weeks. Have you bought a loaf of bread today that was cheaper than say, a few weeks ago? Nope.
By mid-May, international wheat prices stood about 50 per cent below their peaks in late February, although it is important to note that by April, the price of United States wheat was still 80 per cent above the same period last year, according to the FAO.
Decline in wheat futures! No kidding? How will that be passed to us? Don't hold your breath as Food Outlook confirms that recent declines in the US wheat futures have been "pronounced" driven by firmer prospects for a "significant increase" in this years American output as well as at the world level. US winter wheat is forecast up 17 per cent and the world level up 8.7 per cent.
"In May most US wheat futures fell to a five-month low in light of prospects for a record wheat crop this year", said the report.
In the northern hemisphere bigger harvests are expected in all regions with the exception of Asia, where output is expected to remain close to last years levels (though I'm still waiting for China's wheat crop production to be announced.)
Reports from Europe tell us that better weather conditions than last year have particularly favored production in countries situated in the eastern Black Sea zone such as Bulgaria and Ukraine. If normal growing conditions continue for the remainder of the season production in the EU-27 is forecast to reach about 138 million tonnes, up nearly 15 per cent on 2007's low output.
More good news: with regard to wheat imports into the EU it is anticipated that there will be a "sharp decline" as a result of the expected recovery in output, I read in EuroNews. When shall we expect a reduction in price, I wonder? Again, don't hold your breath. Traders are saying that stocks must be replenished first.
After falling to nearly a 30 year low, world wheat stocks by the close of the 2009 crop season are forecast to rise to 168 million tonnes, up 16 per cent. At current forecasts the world wheat stocks-to-use ratio for the new season is forecast at 26.4 per cent, nearly a 5 per cent increase from the 2007/08 low but below the 30 per cent at the start of the decade.
Sadly, the strong demand for wheat, particularly for animal feed, will prevent wheat stocks and the stocks-to-use ration from any significant improvement. In other words, flour prices will remain high as wheat inventories in major exporting countries are expected to rise, with expansion in the EU up 5.5 million tonnes. As Shakespeare would say, "Something's rotten in the State of Denmark"!
Next month (June 3 to 5) there will be a high-level conference on world food security and the challenges of climate change and bio-energy. It's going to be in Rome, at the FAO headquarters. I'm not sure the enormity of how to feed the hungry 900 millions in developing countries can be solved in two days of talk, color me skeptic.
The overall purpose of the conference is to address food security and poverty reduction in the face of climate change and energy security. More specifically, the objective is to assess the challenges faced by the food and agriculture sectors from climate change and bio-energy in order to identify the steps required to safeguard food security within the broader context of action being recommended to address climate change and bio-energy at the global, regional and national levels. It should thus contribute to the UN system efforts in the field of climate change.
I am compiling a photo diary on the amount of food and its cost consumed by families from all over the globe in one week. Make sure you see it, it will be posted tomorrow at 5.30 EDT. It will astonish you how little some families can survive on.