There’s been a measure of relief for cash-strapped UK households, according to inflation figures from the Office of National Statistics (ONS). Food prices fell 0.1 per cent between May and June compared with a rise of 0.9 per cent for the same period in 2011. However, a surge in the price of grain futures on global exchanges suggests the respite could be short lived, and also offers potential short-term trading opportunities.
The fall in food price inflation wasn’t totally unexpected given the link to petroleum prices, but prices could reverse in the autumn as projected yields for key US agricultural exports are being cut back as a result of severe drought conditions. The latest update from the US Department of Agriculture (USDA) revealed a deteriorating outlook, as the proportion of both the soyabean and corn crops rated in “good” or “excellent” condition has fallen well below analyst estimates. The situation has become acute for the corn crop with over half the sown acreage in danger of “heavy or extreme loss of yield”, according to the USDA. Admittedly, around 70 per cent of the corn belt benefited from light rains last weekend, but it still has the potential to be the worst year for US production for a quarter of a century.
Rising forward contracts prices for both crops reflect the expected yield shortfalls, and global prices for wheat could also be spurred if Russia takes the decision to implement another embargo on grain exports in response to a projected decline in domestic yields. Heavy rains in Northern Europe could also hit farm production. London wheat contracts for November are already up by a quarter over the past month, while Paris has posted record highs. Low-cost wheat exports from Russia are an increasingly influential factor in dampening global prices, so any renewal of export restrictions would send wheat prices higher still.
