Global price chaos – is another food crisis on the way?

November 12, 2010

     By Duncan Green     

Today in the FT: “Sugar prices suffered their biggest one-day sell-off in 30 years on Thursday, tumbling by as much ascutting sugar 11 per cent after speculators pulled out from the market in the wake of dizzying gains. The sell-off, which came just hours after the sweetener hit a 30-year high, started after the European Commission granted further export licences for the commodity, a move widely expected among physical sugar traders.

But some hedge funds took Brussels’ decision as a bearish signal and began selling heavily, traders said. The selling quickly escalated into a rout as falling prices triggered a string of automatic sell orders on the way down, they said. “It is a total meltdown, totally unexpected. There is no explanation,” one bullish trader said.”

Food prices Nov 10Yesterday: “As economists and central bankers fret about the risk of Japanese-style deflation in the west, commodity traders are warning of a very different phenomenon: “agflation”. Amid supply shortages and panic buying across the globe, prices for cotton, sugar and wheat have spiralled to multi-year highs this week, pushing up sharply the costs of materials for basic foodstuffs and clothes.”

A look at the FAO’s useful food price tracker (left) shows the picture. Food prices are heading upwards rapidly again, approaching the 2008 peak that saw food riots in some 30 countries, and an outburst of concern over food security that triggered a spate of ‘land grabs’ by rich countries in the developing world. It also drastically pushed up the numbers of the roughly one in seven of the world’s population who go to bed hungry every night, (see graph of numbers of hungry people worldwide). The line falls back a bit to 925 million in 2010, according to the FAO, but given the latest price shifts, is surely about to resume its upward march.

SOFI2This kind of price chaos can mean big profits if you’re playing the market and guess right, but it’s hard to see an upside for either producers or consumers. Is this really the best way to run the global food system?

For more see the Financial Times’ excellent ‘global food crisis’ site.

November 12, 2010
Duncan Green