US Drought, Brazil's Excessive Rain, Russia's Sweltering Summer Combining To Raise Food Prices

Friday, August 10, 2012 06:16
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US Drought, Brazil's Excessive Rain, Russia's Sweltering Summer Combining To Raise Food Prices

Tags: commodities | economy | inflation

The drought in the US, the excessive rain in Brazil, and Russia’s unusually hot summer are all coming together to push food prices up across the globe. The index of global food prices rose 6% in July. That’s the biggest hike since November 2009.

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Corn, wheat, and soybeans prices are all climbing as a result of the drought. But there is a bright spot. There are good supplies of wheat and rice, which are staples that sustain poor people across the globe.
 
Oil prices are also lower-even lower than their peak in 2008—so fuel costs relative to food are also lower. Nevertheless, lots of volatility is predicted in food prices over the next few months. The unusually hot weather in Russia is pushing up wheat prices. Excessive rain in Brazil is affecting sugar crops.
 
This pushes attention into future crops and the major exporting nations—including Argentina, Australia, and Brazil—where the planting of these future crops is just beginning.
 
But the UN World Food Program and the World Bank are concerned that governments will begin hoarding food, which would in turn drive prices even higher. The weather problems have been exacerbated by government bans.
 
Russia’s government banned wheat exports because of the heat wave and spiking sugar crop prices resulted in riots in multiple countries. Increased food prices would harm slowing economies in emerging countries, particularly China, India, and Brazil.
 
China is a primary importer of US agricultural products like soybeans. Mexico is a large importer of corn. Aid agencies get hit from both sides because rising prices also cause their costs to rise.
 
Whatever the effect might be on the US economy is worth considering. Some have felt that a surprise inflation factor could hit and rising food prices resulting from the drought could very well be the instigator in such a scenario.

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