Chris Howells Channel NewsAsia 3 Aug 10;
SINGAPORE : Difficult weather conditions in Southeast Asia recently could cause prices of soft commodities like coffee, rice and wheat to rise this year.
This year saw the worst floods in a decade in China as well as severe droughts in parts of Russia and Ukraine.
Analysts say these will have implications for inflation in Asia, which is likely to tick higher in the second half.
It may affect food prices in markets like China, where bad weather has caused supply disruptions.
Prices of wheat rallied about 30 percent in July, partly due to these conditions.
Soy added 10 percent and corn rose 3 percent.
Observers expect wheat prices to rise a further 8 percent in the third quarter to US$6.50 a bushel.
Avtar Sandu, Asian Commodities Manager, Phillip Futures, said: "We do see a little bit of upside on wheat prices. The weather is a bit of a concern. Wheat has hit a 13-month high. There are not only problems in the Black Sea area, the European wheat is also affected."
Corn is also seen heading higher, to around US$4.50 a bushel in the third quarter from around US$3.90 currently.
Analysts say this could lead to government measures to curb price pressures in countries like China.
Song Seng Wun, Regional Economist, CIMB, said: "If inflation goes above 3 percent, which is the government target, then maybe they have to look at tweaking interest rates up.
In the worst case, (they) might have to impose price control as a result of supply disruption to cap inflation expectations."
Analysts say inflation in China could tick up to 3.5 percent in the second half after falling below 3 percent in June.
This is because food prices contribute around 40 percent to overall consumer inflation in China.
In Singapore, where food prices make up a smaller 22 percent of the consumer price index, inflation is seen rising to 2.5-to-3.5 percent in the second half, compared with two percent in the first half. - CNA/ch
The price of bread could rocket
IRIN Reuters AlertNet 3 Aug 10;
JOHANNESBURG, 3 August 2010 (IRIN) - Wheat prices have doubled in the last two months, notching up the fastest food price rise an economist said he said seen in the last 20 years.
"In the last week alone, the price went up by another 20 percent," said Abdolreza Abbassian, an economist who is also secretary of the Intergovernmental Group on Grains at the UN Food and Agriculture Organization (FAO).
There is no reason to panic, yet. "Any global hike takes at least six months to get transmitted to the domestic markets," he said. What it does mean is that 2011 could be a difficult one for wheat-based foods like bread.
A severe drought and fires in Russia, the world's largest country and one of the top five exporters of wheat, have sent prices skyward. "The prices are not going to come down anytime soon," Abbassian said, but noted that prices were still not as high as the 2008 levels.
Just a few months ago Russia was considering joining the "food donor club", but after the worst drought since 1972 decimated about 20 percent of its food crops, according to the US government's National Oceanic and Atmospheric Administration (NOAA), the country "may need to rethink its position", Abbassian commented.
On top of the drought, NOAA reported that 948 forest fires, covering 26,000 hectares, were burning in 18 of Russia's 46 provinces during July 2010. The country produces about 15 percent of the world's wheat, which it sells mainly to the Middle East and North Africa.
"At the moment the global reserves are okay, but as the drought continues in Russia it will have an impact on planting for next year; it means we might need to be very, very cautious next year," Abbassian said.
The global stock of cereals, which has until now relied mostly on countries in the western hemisphere, has begun to look towards the Commonwealth of Independent States (CIS), a regional organization comprising the Russian Federation, Belarus, Ukraine, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, Uzbekistan and Georgia.
Abbassian pointed out that "Unfortunately, they [CIS] are located in a part of the world which is extremely vulnerable to environmental shocks,", and this could affect agricultural production.
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