Global food prices have been on the rise lately. Whether it is the heat wave in the US or the floods in Russia there is little doubt that agricultural commodities have broken away from the recent despondent price action in industrial or “hard” commodities. This is one of the core macro themes we’ve been looking at for opportunities over at Macro Investor.
Here is a timely piece from Michael Blythe Chief economist of the CBA on this very topic:
“One of the big themes in HI 2011 was global food price inflation and the policy challenges it posed. Food price concerns then subsided as supply conditions improved and other issues took centre stage. But one lingering effect is the policy tightening pushed through in a number of economies as a response to general inflationary pressures in 2010/11. That policy shift successfully dealt with the inflation issues but came at the expense of weaker economic activity. And concerns about “hard landings”, especially in China.
From that perspective the recent lift in key food prices is of concern. Prices for grains and oilseeds, the staple foodstuff for human and livestock populations worldwide, spiked higher in June and have risen further in July. As with any agricultural commodity price spike, this episode reflects weather‑induced supply issues. Drought is hurting production in key exporting regions. Growing risks to US crop production is particularly concerning.”