/ 16 July 2008

Food prices steady, inflation push eases

Food commodity prices have now stabilised after surging early this year while a weak dollar may reduce inflationary pressures in many countries, a senior United Nations economist said on Wednesday.

”It looks like from March onwards we have arrested the rise. It has basically remained flat,” economist Abdolreza Abbassian of the Rome-based UN Food and Agriculture Organisation told Reuters in a telephone interview.

Abbassian said the weakness of the dollar was also becoming an increasingly important influence, reducing the cost of food commodities in national currency terms for many importers.

”It is good news as long as commodity prices don’t go up and offset the gain in the exchange rate. For countries which are not pegged to the dollar, at least they are not importing inflation,” he said.

The FAO’s monthly Food Price Index for June, to be published later this week, is set to be close to May’s revised 216 and below the peak of 217,8 set in March, he said.

The June total would still, however, be more than 40% higher than the same month last year reflecting a sharp jump in cereals, oils and fats prices.

”Overall it appears the market has stabilised, albeit at very high levels,” he said.

Abbassian said there may also be scope for cereal prices to fall as crops are harvested during the next few months.

”We are moving into harvesting time in the northern hemisphere when one could expect further drops in cereals, and wheat in particular,” he said.

Record wheat crop
Last week, the United States Department of Agriculture raised its estimate for global wheat production in 2008/09 by 1,3-million tonnes to a record 664-million.

Lower meat prices during June helped to keep a lid on the food index, Abbassian said.

The FAO’s meat index soared to a record high in May but with some producers struggling to make profits due to soaring feed costs there appears to have been a pick-up in slaughter rates which weighs on prices, he said.

Abbassian warned, however, that the surge in food commodity prices earlier this year may yet to be fully reflected in retail food prices. The index is based largely on export rather than retail food prices.

”In many countries which might not have witnessed rising food prices last year it may come now when they [food commodities] are actually turned into food,” he said.

”The real effect of importing at high prices does surface a bit later so that is what we may be seeing more and more.

Abbassian said if someone could compile an index of aggregated domestic food prices it may show a time lag of ”a few months” before it reflected increases in the FAO food index.

He noted soaring crude oil prices were also an important factor in food production costs, most significantly through a tripling of fertiliser prices in some cases.

”The 2008 crop is a far more expensive crop to produce than the 2007 crop. This will basically keep the high levels [in food prices] for a longer period or prices will actually be higher than projected,” he said.

”Oil has a tremendous role to play.” – Reuters