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Thursday, April 7, 2011

Third Update On The 2010/11 Food Price Spike


(Originally posted on Sustainablog 4/7/11.  For links to all my posts on various sites click here)
The FAO released its monthly indices for food prices in international trade today.  For the first time in many months, most of the indices retreated slightly.  Experts warn that this may not actually mean that this spike is over.  The thinking is that between the crisis in Libya and the earthquake in Japan, the uncertainty drove prices ahead of whatever existing forces would have done.   This should become clearer by the next scheduled index release on May 5th.

The Current Agricultural Response

Ultimately, much will depend on how growers respond to the higher prices in terms of increased planting and better crop protection of what is planted. The USDA's "Planting Intentions" survey released on 3/31 indicated a 4.5% increase for corn, 8.2% for wheat, but a slight 1% decrease for soybeans.  Cotton prices are also up and there is expected to be a 15% increase of that crop after a long period of decline.
The response in the US is to more fully farm existing fields or to displace crops that are not seeing large price increases.  The high commodity prices are driving agricultural land expansion in places like the Cerado of Brazil.  Brazilian farmers recently protested the uncertainty about land use regulations which were never enforced but which could now force them to replant  with a compliance cost of $378 billion.   This combined with efforts by Chinese companies to expand soy production in Mato Grosso puts a great deal of uncertainty into projections for that crop.
Of course much will also depend on the weather, so we won't really know if this historic, second spike will be reversed as with the one in 2007/8.   In any case, "rational intensification" using the most sustainable options on existing acreage is the most desirable way to respond to rising global demand for food.
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