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What's pushing food prices up?
A woman shops at a Manhattan grocery store in New York City.
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Kai Ryssdal: The U.S. Department of Agriculture came out with a report on crop yields this week: How much corn and soybeans American farmers grew last year. Not, apparently, as much as everyone had thought; that sent prices for those two mostly food commodities up to two-and-a-half year highs today. The United Nations says the average overall cost of food around the world is at or higher than its 2008 peak, when those soaring prices caused riots in some places.
From the Marketplace Sustainability desk, Adriene Hill takes a look at why prices are spiking now.
Adriene Hill: The story of food prices is a story of supply and demand -- mostly. On the supply side, the weather's been bad, there was the terrible drought in Russia last summer; flooding in Australia now. And when grains get hit, other foods do too.
Christian Mayer is an analyst with Northstar Commodities.
Christian Mayer: A lot of them are tied together. For instance, corn and wheat. They both can be food, but they can also be feed as well.
That's feed for cows and pigs and chickens. They've all got to eat. If it costs more to keep them fat, it'll cost more to cook up a chuck roast or pork loin.
Demand is up too. There are a billion more people in the world than there were in the '90s, and as the world moves out of the global downturn, more people have more money to spend.
Dan Basse is an analyst with AgResource.
Basse: We find as more people reach middle class, they include more meat protein in their diet, that meat protein requires greater grain units. And so increasingly as the world trade expands, the price of meats and grains both rise.
We're also using grains for more than food and feed -- fuel, for example. The analysts I talked with don't think it's time to freak out. But, says Basse:
Basse: If we have a weather problem anywhere in the world, this market will just explode, and we will see all-time highs in grains and livestock.
Now, remember, about a minute ago, when I said this was a story of supply and demand -- mostly. There is another factor at work in grain prices -- unrelated to the weather and to farmers and to hungry people -- and that's the traders betting on which way the market will go.
So far, Basse thinks speculation isn't really driving the price spikes, but it's a worry some government leaders are paying close attention to.
I'm Adriene Hill for Marketplace.
The report blithely discounts speculation, but the players in the commodities market really salivate over disasters like the recent flooding in Australia.
Remember that the Aussies' flooding arrives during Australia's summer season and a major portion of their agricultural crops for the 2011 harvest are ruined.
In 2008, grain prices shot up because with the U.S. stock market tanking and the mortgage-related investment market ruined, investors looked to the commodities market to place their money. Crude oil ***futures*** shot up to $147 per barrel.
Also, reports were that about $1 billion of extra investment money was flooding into the commodities market ***each week*** during the latter part of 2008.
In my opinion, all of these explanations are hogwash. The main reason why food costs are rising is because oil costs are rising. However, there is currently a surplus of oil. So why are oil prices rising? Quantitative easing. Oil producers are not going to lose money by absorbing the inflation being created by central banks ... they are going to pass along the inflation to their customers.
