Not good:
Global food prices increased for the eighth consecutive month in February, with prices of all commodity groups monitored rising again, except for sugar, FAO said today.The picture at top shows the history of the FAO index since 1990, showing that, in real terms, we are now way above the peak of the 2008 food price shock. (Although, if the index went back longer, it would show that food prices used to be much higher than they are even now).
FAO expects a tightening of the global cereal supply and demand balance in 2010/11. In the face of a growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains. International cereal prices have increased sharply with export prices of major grains up at least 70 percent from February last year.
"Unexpected oil price spikes could further exacerbate an already precarious situation in food markets," said David Hallam, Director of FAO's Trade and Market Division.
Here's the breakout by commodity group recently:
I guess the good news is that the pace of increase does seem to have moderated in the most recent month's data.
This increase in price is result of the speculation (in case of food as well as oil) - supported by market psychology and maybe also of QE - but we are still in deflation (M3 money supply decreases) - so the second market crash should come soon, but I repeat myself :-)
ReplyDeleteI would really like to understand how speculation can drive a commodity's price to the opposite direction of the spot price. Commodities are not stocks, they are traded in the futures market. A future is a contract. The holder has the *obligation* to buy the commodity at the specified price on delivery date. If the spot price is lower he suffers a loss, otherwise he gains a profit. In other words if someone bets against the market with a future he is destined to lose when the contract expires.
ReplyDeleteDear Kostas,
ReplyDeleteI am not sure but clearly the Lehman Brothers collapse led to panic sell-out and oil prices dropped from 147 do 35 in a matter of few months... clearly such large drop was a proof of speculation. Current run up in commodities (check also PMs - precious metals) is very similar if not worse to the first run up... and it is no sustainable by any measure...
Imagine what that slope of that graph would look like if the rice crop was not plentiful....
ReplyDeleteOne way to rise oil prices is buying futures and leting them deliver to your own storage.
ReplyDeleteThe price of coffee beans has doubled in the last year. Some grains are up 70%. Bad economic news regardless of its speculative comment.
ReplyDeleteThe large drop in the price of oil was proof of recession, not speculation.
ReplyDeleteMike,
ReplyDeleterecession started sooner, than oil price drop. First, M3 money supply slowed, home prices started to collapse, then Lehman collapsed (the already was an recession), and THEN oil prices collapsed. How would you explained such sudden and RAPID decline merely due to recession, which was already underway?
Nothing to do with market psychology? (herd behaviour..?)
My view on the speculation thing is that speculation and herd behavior can cause overshoot, but the initial trend is generally due to real fundamental issues. In this case, commodity prices are going up primarily because of demand growth in developing countries (combined in some cases by supply constraints).
ReplyDelete(A)greed ;-)
ReplyDeleteLibyan exports reduced somewhere between 500K and 900K barrels/day. IEA Member nations have 4.1 billion barrels in reserve. WTI has gone up 10% in a week while Brent changed just slightly. It cannot be anything but speculation....
ReplyDeleteRelease some reserves to the market to smack the speculators and maybe next time this will not happen.