Prepare Yourself for Rising Food Prices – Updated

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There’s a reason food and energy aren’t included when the government reports inflation.

Get ready for even higher food prices. The Financial Times reports that we’re getting closer to food price shock. While it will be difficult for us here in the US, it will be devastating for developing countries.

“Stocks of corn and soyabean are at incredibly tight levels … and the markets are surging to incredibly strong prices,” Chad Hart, agricultural economist at Iowa State University, said.

Dan Basse, president of AgResource, a Chicago-based forecaster, added: “There’s just no room for error any more. With any kind of weather problem in the upcoming growing season we will make new all-time highs in corn and soy, and to a lesser degree wheat futures.”

Agricultural traders and analysts warn that the latest revision to US and global stocks means there is no further room for weather problems. The crops in Argentina and Brazil, to be harvested soon, look fragile due to dryness.

Traders are particularly concerned about the cost of vegetable oil, key for developing countries such as China where an emerging middle class is buying more frying oil. The US Department of Agriculture said the ratio of global stocks-to-demand would fall later this year to “levels unseen since the mid-1970s, reflecting an accelerated pace of vegetable oil” consumption for food and fuel.

In Chicago, the price of soyabeans rose as much as 5.2 per cent to $14.20½ a bushel, the highest since late 2008. The USDA said that domestic stocks-to-demand would drop to the lowest point in nearly half a century.

Corn prices jumped 5 per cent to $6.37 a bushel, the highest level since July 2008.

Maybe if we stopped putting food into our gas tanks, more of it would be available for people to eat.

Update: An article in the Wall Street Journal notes the role of ethanol in driving up demand for corn.

At the same time, demand is increasing. The USDA said ethanol producers likely will increase their use of corn, and consumption by emerging market countries continues to be strong.

Prices of many agricultural commodities are still below the levels that sparked food riots in poor countries around the world in 2008. But economists see few signs that prices for grain, livestock and cotton will cool significantly anytime soon, signaling potential headaches for consumers and food companies.

What it can mean for you at the grocery store:

In the U.S., the commodity-price rally could sting consumers in the short run. Michael Swanson, an agricultural economist at Wells Fargo & Co., said he expects retail food prices in the U.S. to rise between 3.5% and 4% this year, compared to about 1.5% in 2010.

Mr. Swanson said retail prices of beef and pork might jump as much as 10% this year. Many livestock farmers are losing money feeding high-priced grain to their herds, which could force them to shrink the size of their operations. While that could temporarily increase the availability of meat, supplies would eventually fall. “There is no way this beef is getting into the supermarket without a major increase in consumer prices,” Mr. Swanson said.

Christine Sukalski, who helps run a family dairy farm in LeRoy, Minn., said prices of some rations for their roughly 300-cow herd have doubled over the past year. “It’s driving our feed costs up,” she said.