Meat Price Surge Fuels Fears of Food Inflation

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China’s Food Price Inflation Is Starting To Affect the Rest Of the World

Financial Times:

Global meat prices have hit a 20-year high as robust demand from emerging countries has coincided with a drop in production by exporters such as the US and Australia, fuelling concerns about rising food inflation.
The UN Food and Agriculture Organisation’s index of meat prices rose in August to its highest level since 1990, up 16 per cent over the past year, after lamb prices hit a 37-year high, beef prices climbed to a two-year high and the cost of pork and poultry prices rose.
“There has been sustained demand from Asia and from the Middle East for both beef and lamb,” said Pedro Arias, a livestock economist at the FAO in Rome, echoing a widely held view in the industry. “But the traders have not been able to satisfy that demand because herds have been curtailed.”
The sharp price rises have attracted speculative money to what is otherwise a niche market in Chicago. The number of outstanding contracts at the Chicago Mercantile Exchange for live cattle and lean hogs futures and options – both benchmark derivatives – has jumped by nearly a third since the start of the year.
But industry executives, traders and analysts said the increase in prices was not due to the inflows of hot money, but rather supply and demand factors. Meat production has stagnated in top exporting countries as livestock farmers suffered a series of misfortunes from severe droughts in Australia and Latin America, to low prices in the early 2000s and record high feeding costs.

At the same time, the growing middle class in emerging countries from China to Brazil is demanding a richer protein diet, further straining the industry’s supply.
Eddie Troutman, vice-president of international and byproduct beef sales at Cargill, the agribusiness that owns meatpacking plants in the US and Canada, said: “I’m very bullish on beef exports over the next several years.”
Live cattle futures in Chicago last month reached $1 a pound, the highest in 22 months and near the record high set in 2008. Australian lamb prices have risen above A$5.50 a kilo, the highest since 1973-4. And pork bellies – used to make bacon – have risen to a record price of almost $1.50 a pound in the US.
The rise in meat prices comes amid heightened concerns about food price inflation since this year’s drought in Russia devastated the country’s grain crop, triggering a sharp rise in the price of wheat and other cereals.
In Saudi Arabia, which depends heavily on imported food commodities, the price of red meat rose 12 per cent in the six months to July, said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh.
“Food inflation is one of the main causes of build-up in inflation we are seeing this year,” he said.

Read the original story at Israel’s Financial Expert