Bloomberg News

Food Prices Jump to Six-Month High as Dairy Costs Rise

October 04, 2012

World food prices rose in September to the highest in six months as dairy and meat producers passed on higher feed costs to consumers, the United Nations’ Food & Agriculture Organization said.

An index of 55 food items tracked by the FAO rose to 215.8 points from a restated 212.8 points in August, the Rome-based agency reported on its website today. Dairy costs jumped the most in more than two years.

Livestock breeders and dairy farmers are passing on the higher cost of feed, after grain prices jumped in June and July, according to Abdolreza Abbassian, an economist at the FAO in the Italian capital. Higher prices don’t mean a food crisis is imminent, he said today by phone.

“Despite a very difficult market, the fundamentals that suggest a food crisis are just not there,” Abbassian said. “Market sentiment is now accepting high prices more as a rule than as an exception.”

The FAO dairy-price index jumped 6.9 percent to 187.7 points from 175.6 in August, the biggest advance since April 2010, the data showed. The index for meat prices rose 2.1 percent to 175, climbing for a second month.

The world cereal-price index rose to 262.6 points from 259.9 points the previous month to reach the highest level since April last year. The index for grain prices in July surged 17 percent, the biggest jump since February 2008.

“We expected this for both meat and dairy, you have a lag with this big increase in input cost from the grain sector,” Abbassian said. “There will be a limit to how much it goes up. By how much you can raise prices without consumers cutting consumption remains an issue.”

Milk Futures

U.S. Class III milk futures gained 5.6 percent in Chicago last month after climbing 7.9 percent in August, rising for a fifth month. They’re up 23 percent since the start of the year.

The FAO had no reason to expect a food crisis, Director- General Jose Graziano da Silva said last month, after food prices leveled off following a 6.2 percent jump in July, the biggest gain since November 2009. The food index last month was little changed from the start of the year, and has dropped from a record 237.9 points in February 2011.

High food costs last year contributed to civil unrest across the Middle East and North Africa, toppling governments in Tunisia and Egypt. The U.S. State Department estimates that surging food prices triggered more than 60 riots worldwide from 2007 to 2009.

“Obviously costs are going up, and for some of the poorer countries this is always a problem,” Abbassian said. “Domestic prices have not gone up anywhere as fast as in international markets.”

Grain Production

The FAO forecast world grain production will fall to 2.29 billion metric tons this year from 2.35 billion tons in 2011, cutting its expectation by 8.8 million tons from a month ago on lower output of coarse grains, the agency wrote in a separate statement today.

“The cereal situation seems to have become more predictable than it was over the summer period, so hopefully that means less instability in cereals in coming weeks,” Abbassian said.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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