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Another wave of food price inflation is on the way

Section: Daily Dispatches

World Food Price Rises Set to Hit Consumers

By Javier Blas, Chris Giles, and Hal Weitzman
Financial Times, London
Sunday, December 16, 2007

Global food prices will come under further pressure on Monday as benchmark prices for cereals at much higher levels come into operation, making it almost inevitable that a second wave of food price inflation will hit the world's leading economies.

In Chicago wheat and rice prices for delivery in March 2008 have jumped to an all-time record, soyabean prices are at a 34-year high, and corn prices at an 11-year peak.

Knock-on price rises are set to hit consumers in coming months, raising inflationary pressure and constraining the ability of central banks to mitigate the slowdown in their economies.

A first wave of surging cereal prices hit the wholesale market during the summer and has fed through the supply chain and contributed to rising inflation.

The increase of eurozone food price inflation to 4.3 per cent in November was one of the main reasons for the jump in the zone's annual inflation rate from 2.6 per cent in October to 3.1 per cent, the highest in six years. In the US, annual food price inflation of 4.8 per cent in November contributed to a rise in the inflation rate to 4.3 per cent.

In the UK, food inflation was already running at an annual 5.1 per cent in October and analysts expect higher food prices to push overall inflation up in November. The UK figures are due to be published tomorrow.

In trading on Friday, the new benchmark price of wheat for March delivery rose 26 cents to $9.795 a bushel, more than 4 per cent higher than the expiring December contract of $9.39.

Benchmark prices for corn are also more than 4 per cent higher than previously.

The benchmark prices for soyabeans delivered in January rose on Friday to a 34-year high of $11.64 a bushel.

Rice, also for January, has jumped to an all-time high of $13.310 a hundredweight.

Bill Lapp, analyst at US consultancy Advanced Economic Solutions, said: "We've already seen food prices increase this year at their fastest pace since the early 1980s, but the full brunt of those increases will begin in earnest in 2008."

The agricultural commodities price rises are the result of high demand, poor harvests and low stockpiles of food. Emerging economies, where rising incomes are boosting consumption of meat and dairy products, have added to pressures already generated by the biofuel industry.

Cereal supply was this season lower than expected as several countries suffered weather-related losses. Jean Bourlot, head of agriculture commodities at Morgan Stanley in London, said: "High cereals prices are here to stay."

The US Department of Agriculture has predicted that global corn stocks will fall to a 33-year low of just 7.5 weeks of consumption, while global wheat stocks will plunge to their lowest level in at least 47 years at 9.3 weeks.

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