The price implications of the grain shortage brought about by the prolonged drought in the US are now becoming clearer. A report by Rabobank predicts that food prices will hit record highs next year with the United Nation's Food Price Index forecast to rise 15 per cent by next June.
The good news is that poor consumers in emerging markets are unlikely to suffer to the same extent as they did in the last major food crisis in 2008, because the US drought chiefly hit yields for soybeans and corn, rather than global grain staples such as rice and wheat. Analysts at the Dutch agricultural bank predict that the effects of the shortages will be particularly noticeable within the livestock and dairy industries.
As prices rise, demand for both oilseeds and meat will tend to fall away in Asia and other emerging markets due to the elasticity of demand for these commodities. But western households, where demand for animal protein rarely lets up, will have to dig deeper. Statistics from the US Department of Agriculture show that a higher number of US dairy cows went to slaughter in July than the same time last year, an indication that soaring feed costs are prompting farmers to liquidate their herds. An additional 32,000 milkers got the chop in July, and the trend appeared to be accelerating through the early part of August, with 7.7 per cent more beasts headed for the abattoir.
