The Intelligent Investor Growth Fund is listing on the ASX. Initial Offer closes Friday.

Global food prices on the boil

AUSTRALIAN farmers are set to benefit from a surge in the global price of corn, wheat, soybean and sugar, as extreme weather knocks out key food producers across the world.

AUSTRALIAN farmers are set to benefit from a surge in the global price of corn, wheat, soybean and sugar, as extreme weather knocks out key food producers across the world.

But economists warn that Australian consumers are at risk of an uptick in food prices as suppliers pass on costs of production amid competition from offshore for quality produce.

In the past six weeks, world corn and soybean prices have surged more than 50 per cent as the worst drought in 56 years to hit the US has crippled production and threatened global supplies.

Extreme hot weather in the US farmbelt - a region that accounts for a third of global corn production - has become so bad that analysts warn that the price of corn in world markets will remain near record levels for the next 12 months.

Australian producers exporting their goods will be able to charge higher prices, putting pressure on the volume and prices of goods sold into the local supply chain.

It comes as early wheat harvests in southern Russia and Ukraine report declines of up to 40 per cent compared with this time last year, following damaging winter weather in the Black Sea region.

Economists say consumers will probably see an increase in the price of food in Australia in coming months as suppliers pass on some of the rising costs of production.

"The rise in staple products such as grains is undoubtedly inflationary in terms of impacts on food prices," NAB agribusiness economist Michael Creed said. "Feed grains, for example, account for around 40 per cent of the total cost of poultry production, so there is a good chance that this will be inflationary. But it [will] take some time ... for those price rises to feed through."

It comes as the Bureau of Statistics prepares to release the June inflation figures. Economists predict a modest increase. In recent months there has been a fall in food prices.

"The last few CPI numbers surprised on the downside and, subsequently, gave the Reserve Bank board the 'room' to deliver cash rate cuts. Another downside CPI surprise cannot be ruled out, but it looks unlikely," Commonwealth Bank chief economist Michael Blythe said.

The supply shocks to the US and Black Sea regions alone mean global corn and wheat stocks are expected to fall by at least 15 per cent this year.

This week, the Chicago Board of Trade said corn prices were up 53 per cent since last month, wheat prices rose 41 per cent, while soybeans rose 27 per cent.

"The US corn crop is a category killer. It is such a massive crop that, depending on what yields do, it can set the tone for the grain market for the next 12 months," senior ANZ agricultural economist Paul Deane said.

"We've pretty much got an assured bull market in grains again for another 12 months. These prices are certainly here to stay. They're not going to disappear very quickly." Sugar prices have also soared in recent weeks after continual wet weather in Brazil.

The Brazilian sugar crop accounts for more than 50 per cent of world sugar exports. They start their crush or harvesting runs from April through to November but they've had continual wet weather delays.

The US government said this week the drought in the Midwest may continue for the rest of the season.

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles