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News : International Last Updated: Apr 24, 2009 - 5:31:05 PM


World economy faces renewed spike in food inflation as feed cost rises push up price of meat; Australia warns of lower wheat crop because of dry weather
By Finfacts Team
Jun 17, 2008 - 7:48:44 AM

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The world economy faces a renewed spike in food inflation as the price of meat surges on the back of record prices for corn and soyabean, the feedstock for farm animals. On Tuesday,  Australia, expected  to be the world's third-largest wheat exporter this year, said it may produce shortfall of 8.8% in its crop output than previously estimated because of dry weather.

On Monday in the US, corn and soyabean prices surged to new highs after US farmers said heavy rain and low temperatures over the past six weeks had damaged millions of acres of crops and meant several million more acres had been left unplanted.

The rise in the prices of feedstocks is expected to push up the cost of meat, poultry , dairy products, bread sand cereals.

The United Nations’ Food and Agriculture Organisation (FAO) said that higher feeding costs, strong demand and tight supplies were pushing up the retail prices of meat.

The FAO said in its monthly Food Outlook, which was published on Monday, that preliminary estimates indicate that the FAO International Price Index of meat products reached its highest level of 136 points (1998-2000=100) in April 2008, continuing its recent upward trend that began in June 2006. The main reasons for this development are: higher feed costs, the depreciating US Dollar, and the rising demand for meat largely fuelled by economic growth in developing countries, particularly in Asia. Although, individual meat categories have exhibited different developmental paths in the past because of differences in feedstuffs used, feed conversion efficiencies, biological production cycles, as well as differences in contractual agreements, the trends for all since 2006 have been in the upward direction.

The FAO says that despite the recent trend, meat markets have not yet experienced price hikes of comparable magnitude to those observed in grains, oilseeds and dairy product markets. But sustained increases in production costs, notably of feed, in major producing countries, that are reducing the profit margins of meat producers, suggest that prices of meat products could come under greater pressure. The delay in the response of meat markets to developments that are taking place in the feed markets is partially due to typical livestock cycles, as well as recurring animal diseases.

In Chicago, live cattle futures for delivery in April 2009, jumped to 115.5 cents a pound, the highest for any cattle contract traded in the US. The spot live cattle contract traded at 96.075 cents a pound, approaching a record high for spot contracts.

Meat prices have risen by almost 15% in the past six months, accelerating from a 5% rise in the previous six-month period, according to the FAO.

The rise in meat prices will affect Europe and the US in particular as poorer countries rely more on staples such as wheat and rice .

The US is the world’s biggest corn exporter, accounting for 70% of global trade, and the second largest exporter of soyabean, with an estimated market share of almost 40%. It is also an important beef exporter.

Spot corn prices in Chicago reached a record of $7.60 a bushel on Monday, with contracts for delivery next summer trading for the first time above $8 a bushel. Spot soyabean prices rose to a fresh record high of $15.93 a bushel.

Australian Wheat

Australian wheat output may be 23.7 million metric tons in the harvest starting from October, the Australian Bureau of Agricultural and Resource Economics said today. That compares with its March estimate of 26 million tons and last year's revised drought-reduced crop of about 13 million tons.

May was Australia's driest on record and wheat prices have fallen 35% from a February record high, partly on expectations that a bigger crop in Australia would increase exports and help ease a global food crisis.

``With the exception of Western Australia, the majority of Australia's winter cropping regions received below average autumn rainfall,''the bureau said in the June crop report. ``The lack of autumn rainfall meant many winter crops were dry sown or not sown during the optimal planting window as growers waited for rain.''

Wheat futures for July delivery fell 1.25 cents, or 0.1 percent, to $8.7525 a bushel on the Chicago Board of Trade in after-hours electronic trading. The grain had reached a record $13.495 a bushel on Feb. 27.

``Widespread rainfall in early June in the eastern states provided the moisture for growers to complete intended cropping programs,'' the bureau said. ``Rainfall during the growing season will be critical to these production forecasts being realized.''

The US will be the world's largest wheat shipper, followed by Canada and Australia, according to the US Department of Agriculture (USDA). Australia was the sixth-largest wheat exporter last harvest after drought cut output the past two years. Earlier this year, the USDA forecast that US wheat stocks will fall to a 60-year low this year.

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