August 30, 2010

 

Malta faces high food prices on soaring grain market

Skyrocketing grain prices caused by adverse weather conditions in the largest producing countries could lead to soaring food prices in Malta, a Southern European country, according to commodities market analyst Steve Cachia.

 

"Since most of our food is imported, there is no way prices can be controlled internally. Importers could end up buying more expensive products while having to pass these prices on to consumers," he added.

 

The Brazilian company, Cerealpar, does business in the domestic and international markets, trading in about six million tonnes of soy, soymeal, soyoil, corn, sorghum and wheat. Its clients include farmers, cooperatives, soy crushing plants, trading companies and commodity investment funds.

 

This month, the price of wheat rose by almost 80%, corn by 30% and soy by 20%, among others, after production came to a standstill with drought in Russia and the Ukraine and floods in Canada and Pakistan.

 

"This means farmers who did not lose their crops to the weather can sell their products at better prices while bullish market players also managed to increase their profits," Cachia said.

 

However, this also means the production costs of most food items have increased and will have to be passed on to the end-consumers, possibly meaning inflationary pressure in the coming months, he added.

 

Since grain is widely used to manufacture a myriad of products, ranging from food to industrial products, the skyrocketing prices could ultimately affect staple food, including bread, whose prices last rose two years ago.

 

Foreign governments have already braced themselves for the possible inflationary pressures with consumers likely to start paying more for food, household products and fuel.

 

"During these last years, agricultural commodities have become more volatile and, although there is never a guarantee in the market as to which direction it will be going, supply usually responds very quickly to price increases," Cachia explained.

 

At present, world grain supply seems ample but it is definitely lower than what was expected to be harvested some months ago. Moreover, a weather phenomenon that struck South America has made yield forecasts uncertain, despite farmers' efforts to increase their planting area. "This could mean another round of production losses and, consequently, another period of price rallies," he said.

 

However, should the harvest be good, it would contribute to balancing out demand and supply as the US alone is expected to harvest a record crop in the coming weeks, possibly pushing prices down to a seasonal low but this is not enough as South America is experiencing severe drought.

 

Russia announced last week its agriculture industry faced losses of over a US$1 billion after the drought destroyed over a quarter of its crops, spurring the government to ban any foreign grain exports earlier this month as harvest forecasts were slashed.