I have been following the rise in food commodity prices recently and if we look at the CRB (Commodity Research Bureau) foodstuffs index we see that it entered 2014 at around 365 and as of last night’s close is at 421.85. So up by just under 16% in the year so far. It has been quite a sharp bounce back from the previous downwards trend that began in the spring of 2011 and we have now regained the drops of 2013.
It appears that these price rises have affected the breakfast habits of at least one journalist on the Financial Times.
“Everything we have for breakfast is up,” said Abdolreza Abbassian at the UN Food and Agriculture Organisation of the increases of coffee, orange juice, wheat, sugar, milk, butter, cocoa and pork. “This has all happened unexpectedly but shows how quickly things can change.”
Apparently the power of the stomach has defeated the usual theme of the Financial Times. Also we see a familiar word with the price rises so step forwards one more time “unexpectedly”. As we look into the detail we see this.
Coffee has soared more than 70 per cent because of unseasonably dry weather in Brazil, while US pigs have been hit by a virus epidemic, leading to a more than 40 per cent rally in Chicago pork prices.
We have discussed before the increasing demand for pork from China as its economy grows so perhaps that too has been an influence here. Also events in the Ukraine have led to upwards pressure on wheat prices as fears of a supply disruption there have helped drive wheat prices (Kansas City) up by 22% since the beginning of February. Those of us who drink tea for breakfast rather than coffee can have a small smile of satisfaction as our preferred tipple or caffeine injection has risen by much less. Indeed the pattern over the past year has been rather different indeed. From the Kenya Broadcasting Corporation.
Tea farmers should brace for reduced bonus this year following an oversupply that has seen prices drastically fall over the last one year…..Tea prices at the Mombasa auction have suffered a 30% decrease since July 2013 as a result of increased supply.
However whilst disinflationistas may be feeling better I have a troubling thought which is that the breakfast tea I prefer has risen in price. Surely some mistake? No this represents the way of an increasingly complex price pattern and delivery in these times and as it currently has a special offer I took a supply from the shelves. Why? Special offers are often the supermarkets way of producing a fog over a price rise and the two are heavily correlated in my experience.
The Financialisation of it all
There is a familiar force at play here too. Again from the FT.
Financial speculators have started to pile into agricultural commodities, pushing net “long” or bullish positions to the highest level in four-and-a-half years.
This is a familiar feature of the credit crunch era where these forces have risen in power since the advent of policies like Quantitative Easing began but of course we are regularly told that this is a pure coincidence.
Some prices have fallen
Having covered the impact of China on the falling price of copper and iron ore there is this factor to add into the mix. This problem is, in many respects, building as the Yuan has dropped again to 6.20 to the US Dollar today. But there is an undercut which is that the CRB metals index has been falling at a slower pace (4%) than foodstuffs have been rising in 2014 so far.