June 18, 2008
World meat prices to jack up as bad weather batters US feed crops
The world economy may soon face a fresh wave of food inflation as meat prices surges on the back of record prices for corn and soy, the main feed grain for farm animals.
Both crops jumped to new record on June 16 after US farmers said torrential rains and low temperatures in the past six weeks had damaged millions of acres of crops and meant several million more acres had been left unplanted.
Traders said rising prices for corn and soy would push up the cost of meat, poultry and dairy products. The surge in corn prices would further affect a range of foodstuffs, including breakfast cereals and sweeteners.
The United Nation's Food and Agriculture Organisation (FAO) warned that higher feeding costs, strong demand and tight supplies were pushing up the retail prices of meat. Meat prices have increased by almost 15 percent in the past six months, accelerating from a 5 per cent rise in the previous six-month period, according to the FAO.
In its monthly food price index report, FAO said "in the face of strong demand, meat supplies are tight and this situation is contributing to the increase in prices."
In Chicago, live cattle futures for delivery in April 2009 - a key contract - on June 16 increased 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.
The rise in meat prices will be felt most strongly in richer countries such as in Europe and the US. Poor countries rely more on staples such as wheat and rice and suffered during last year's price surge in those cereals.
Sudakshina Unnikrishnan of Barclays Capital said the impact of extremely wet weather in the US had continued to buoy the grain markets. She said the main concern is that farmers might decide it was too late to plant their fields and would, instead, cash in their crop insurance policies.
The US is the world's largest corn exporter, accounting for 70 percent of global trade, and the second largest exporter of soy, with a market share of almost 40 per cent. It is also a large exporter of beef.
The expected fall in corn production means global corn stocks, measured by days of consumption, would fall by next summer to the lowest level since the early 1970s, according to Deutsche Bank.
Spot corn prices in Chicago on June 16 reached a record of $7.60 a bushel, with contracts for delivery next summer trading for the first time above $8 a bushel. Spot soy prices rose to a fresh high of $15.93 a bushel.
