Friday, January 7, 2011
This is interesting. The FAO index we talked about yesterday has a set of subindexes for different types of food (graphed above - note that 2002-2004 = 100 on the y-axis). If you study the 2007-2008 food price spike, it was driven most strongly by cereal and oil prices (consistent with the idea that it was, at least in part, biofuel driven). The cereal/oil complex is high again now, but not nearly as high as in 2008. What is much higher is meat, and especially sugar, the price of which has gone nuts lately (so to speak).
Apparently, the causes are fears over the Australian sugar harvest due to the flooding there, combined with losses in the Florida sugar harvest due to unusually cold weather there in December. So that part is weather related.
Of course, it's tempting to score rhetorical climate change points here, but I suspect rather that underlying demand is growing rapidly with the increasing economic growth in China and other developing countries, and so there's little slack in the system, and then every bit of bad weather around the globe starts to translate into big commodity price moves.