Rising Oil Seed Prices May Not Lead to Food Inflation

on May 28, 2012
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Global supplies of oil seeds like corn, rapeseed and soybeans have been under a serious crunch lately due to the hot and dry weather conditions in the Latin American agricultural belt, which includes some of the biggest country exporters like Brazil, Argentina, Uruguay and Paraguay. The Financial Times noted that because of significantly lower yields, since the beginning of the year soybeans have gone up in value by 20 percent, reaching on Friday their highest price point for the last four years — $15.09 for a bushel. Some commodity traders predict that soybean prices may even go up as high as $16-$17 a bushel, surpassing the record cost of $16.63 from 2008.

Canola prices last week reached their highest value since July 2008 — C$665.90 per tonne. In Europe, rapeseed is sold at €514 per tonne, which is just two percent lower than the 2008 price peak. And in China, corn prices in March reached a new high – Rmb2,497 per tonne. This is a 10 percent increase on prices from the beginning of the year.

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Two weeks ago, the US government announced the completion of the biggest one-day corn export deal since 1991, prompting market experts to speculate that the destination would most likely be China. Consequently, corn prices last Monday went up to $6.58¾ for a bushel – only about a dollar less than the price during the food crisis in 2007-2008.
“We are going to see much higher prices as it is becoming clearer that the Latin American harvest is sharply down,” noted one senior executive with a leading trading house.

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The Financial Times explained that oilseeds are widely sought as a source of edible cooking oil and as an ingredient in processed foods. In addition, the crops are also valued for their high protein content, which makes them an excellent feed for pigs, cows, poultry and sheep. According to market analysts, the increasing costs of feed meal have already caused increases in the cost of meat worldwide.

Some experts fear that the price-hike trend could persist, leading to global food inflation. Richard Feltes, vice-president of Chicago-based futures brokerage firm RJ O’Brien, told the Financial Times that the agricultural sector is “not going to see food inflation abating in the next 18 months, to two years.”
But Feltes’ predictions could be countered by apparent stability in the prices of primary agricultural commodities, which may balance out the rising costs of oil seeds. For example, the cost of rice and wheat, which the Financial Times deemed the two most important agricultural commodities for global food security, remain stable. Sugar, which is a crucial source for calories particularly in India and other developing countries, has also been going down in value.

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