Food Prices Worldwide Surge Due to U.S. Drought

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The Food and Agriculture Organization (FAO) of the United Nations (UN) said the prices of food worldwide have surged due to higher costs of sugar and grain. The widespread drought in the United States is affecting the global food prices.

Food Prices Worldwide Surge Due to U.S. Drought

According to the monthly FAO Food Price Index (FFPI), prices of food went up by 12 points, or 6 percent in July, after three months of decline. The 213 points average price index in July is lower compared with the peak of 238 points recorded in February 2011.

The UN agency reported an almost 23 percent increase in global corn prices in July, due to ‘severe deterioration maize crop prospects in the United States, following drought conditions and excessive heat, during critical stages of the crop development.”  The price of cereal increased by 38 points or 17 percent.  The international price for wheat also went up by 19 percent because of the low supply of corn.

Sugar price surged by 34 points, or 12 percent, driven by untimely rains in Brazil, which delayed harvesting in July. Brazil is the world’s largest exporter of sugar. The price of sugar was also affected by delayed rain in India and poor precipitation in Australia.

The price of oil and fats increased moderately by 5 points or 2 percent. The ample supply of palm, sunflower, and rapeseed oil prevented the price from jumping higher.

Dairy prices remain the same after five consecutive months of decline, while the meat price index went down by three points. The report cited market weakness in the four meat sector, particularly pork meat, down by 3.6 percent.

A report from CNN cited reactions from Sam Zippin, analyst from Sageworks, a financial information company, and Paul McNamara, associate professor at the University of Illinois College of Agriculture, regarding the global price index. Zippin said corn is almost everything, and he thinks it will have a big impact on consumers.

On the other hand, McNamara expects more price increases for grain. According to him, cattle ranchers will use grain as a substitute for corn, which is the most expensive feed. He also said, the weak harvest and corn price increases will put pressure to U.S. legislators to change the current policy on ethanol, which mandates almost 10 percent of the country’s fuel supply will be generated from corn. McNamara also said the price decline in meat is just temporary. He said, “You might have some extra supply this year as people liquidate their herds, you’re going to have, a year from now, tighter supplies as people reduce their herds in the U.S.”

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Donnie Smith, CEO of Tyson Foods, Inc. (NYSE:TSN), a leading meat processor in the United States, previously stated the company is pressured by the rising cost of grain due to the ongoing drought in the country,  and expects to pass along the costs to consumers. Prices of beef, chicken, and pork are expected to increase.

Archer Daniels Midland Company (NYSE:ADM) is also negatively affected by the widespread drought in the United States.

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