Food Inflation Rife as Agriculture Squeezed

Rob Mackrill - Tue 18 Dec, 2007

A second wave of food inflation is on the way, says the FT... Wheat prices are trading at an all time record level...more than $10/bushel for March delivery. Soya bean prices are at a 34-year high and corn (maize) prices are at an 11-year high...

A second wave of food inflation is on the way, says the FT...

Wheat prices are trading at an all time record level...more than $10/bushel for March delivery. Soya bean prices are at a 34-year high and corn (maize) prices are at an 11-year high.

What’s driving it? As if you didn’t know...rising emerging market demand...the rush to biofuels, and disappointing crop yields. This has left stocks in some cases at multi-year lows. The US Department of Agriculture forecasts global stocks of wheat will fall to a 47-year low of 9.3 weeks and corn (maize) will fall to a 33-year low of just seven and a half weeks.

And of course farming costs have not been standing still. Diesel costs more. As we noted, UK farmers make up a good part of the pressure group demonstrating last week-end about the cost of fuel. Fertilisers and agro-chemicals are more expensive too. The Times reports one manufacturer of fertiliser, Growhow UK, has seen its raw material costs double.

Urea has risen 86% in dollar terms over the past year, and ammonium phosphate 150%. Chemical fertilisers are also a big user of natural gas, also rising in price. You can sense a certain bemusement from Growhow’s marketing manager, Ken Bowler, comment to the Times: “We are going through unprecedented times.”

Estimates for this year’s wheat production suggest the world is consuming more than it is producing. The International Grains Council estimates world production at 603m, and consumption at 611m tonnes.

Add all this into the supply and demand mix and prices have only one way to go. Jean Bourlot, head of Agricultural Commodities at Morgan Stanley, tells the FT:

“High cereal prices are here to stay.”

Along with high oil prices, by all accounts...

Of course food and energy are two of the “volatile” elements outside the definition of “core” inflation. Yet they continue to harass the rate cutting agendas of the central bank posse riding to the rescue of the credit markets. Though not as much as we might expect according to the latest UK inflation number. At least not yet...

Higher basic food prices and $90-plus oil has had a modest impact on the UK’s inflation as recorded by our EU harmonious CPI index. November’s CPI came in at 2.1%; surprising economists with its calm demeanour...they had been expecting 2.2%. A bit of good news at least which has seen the FTSE 100 into positive territory today, up 45 at 6,322 by midday. It should prove good news for cash-strapped borrowers too, as it clears the way for interest rate cuts early next year.

Gordon Brown, sinking low in the opinion polls, will be hopeful of a ‘feel-good factor’ among the electorate from lower rates replacing the grumpy mood prevailing presently. His flagging government, currently knee deep in grovelling data loss apologies, certainly needs a boost.

A word on the subject of confidential data loss, as reports inform us that 3m learner driver details have been lost in Iowa. (Iowa? We’re outsourcing to Iowa?). This comes on the heels of reports in November of the loss of computer discs with the personal information on all families in the UK...some 25m people. The 1998 Data Protection Act introduced certain principles to keep personal information secure, says the gov.uk website, helpfully. Amongst them ‘protection from its misuse and protection in the event data is transferred abroad’. Ho, ho, ho, as a certain rotund gentleman with a white beard and a red tunic might retort.

*** I caught up with a mortgage broker this morning. “How’s business?” I enquire:
‘New enquiries have dried up’ he says glumly. ‘...except for debt counselling!’

‘I have a client who’s been made redundant. He’s got £170,000 borrowed; four kids and now can’t afford the mortgage now he’s in a lower paid job. I’m trying to get him a sub-prime deal. The lender is looking at it but it’s going all the way up to board level for the decision. In the old days you could ring someone up and talk to them. Now everything is on a computer.’

Personal relationships count for little next to the cold read of your credit score... and a sub-prime score today is bad news indeed.

*** The downfall of financial journalist Ed Mitchells has caught my attention for obvious reasons. A successful TV journalist and former ITN-newsreader fell into huge debt lost his house and wife and is now sleeping rough in Hove.

Our hearts went out to his plight and the cruel world that can dash our finest, until the Times helpfully realigned our sympathies with the facts...by talking to his 82 year-old Mum. He’s a drunk, a dosser and an embarrassment she tells them in so many words. He had been living with her but had so abused her help that, in despair, she kicked him out.

Ah, it's a cruel world from the bottom of a bottle. 

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