Food Prices May Stay High in Next Six Months on Drought: FAO

Global food prices will probably stay high in the next six months after drought in the U.S. and Russia cut grain supplies, said the United Nations.

The global market “will switch to a short supply mode” for the first time in two years, said Hiroyuki Konuma, the regional representative for Asia and Pacific at the UN’s Food & Agriculture Organization. “We will have to monitor it very cautiously,” he said in a phone interview on Oct. 3.

World food costs rose in September to the most expensive in six months as dairy and meat producers passed on higher feed prices to users, the FAO said yesterday. An index of 55 food items rose to 215.8 points in September from 212.8 a month earlier and compared with a 131.17 average in the past 20 years. Corn traded in Chicago jumped 50 percent since the middle of June as the worst U.S. drought in half a century killed crops.

Food prices monitored by the UN may climb 15 percent by June, surpassing the record set in February 2011, Nick Higgins, an analyst at Rabobank International, said in a report on Sept. 19. Grain and oilseed prices should “remain at elevated levels” for at least the next 12 months to ration demand and encourage crop farmers to boost planting, he said.

“We do not anticipate food prices peaking” or a food crisis at this stage because crude-oil costs are lower than in 2008 and rice supplies are abundant, Konuma said.

The FAO forecasts world grain production will fall to 2.29 billion metric tons this year from 2.35 billion tons in 2011, cutting its expectation by 8.8 million tons from a month ago on lower output of coarse grains, it said yesterday. Dry weather has hurt crops from the U.S. to Russia and Australia.

Corn for December delivery fell 0.4 percent to $7.5425 a bushel on the Chicago Board of Trade today.

To contact the reporter on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net