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After the wholesale price of food initially slumped during the coronavirus pandemic, the global FAO Food Price Index has shown a steep increase since the fall. Most recently, food around the world was more than 27 percent pricier than the 2014-2016 average, on which the index baseline of 100 points is calculated. The May figure is the highest of any month in almost ten years.
Palm oil prices have been driving the increase in the index since the fourth quarter of 2020, but global cereal prices also showed an significant bump in the past months, together creating a level of food prices not seen in a decade. Dry weather and production disruptions due to COVID-19 coupled with high global demand led to the depletion of palm oil inventories, in turn driving up prices. As transportation picked up again, biodiesel demand led to an increased need for soyoil. Both developments caused prices for vegetable oils to exceed the 2014-2016 average by almost 75 percent in May.
For cereals, strong demand from China increased prices, especially for sorghum, barley and corn. Worsening crop prospects in Latin America have also contributed to the increase in maize prices.
Speculation about whether the disruptions of the coronavirus pandemic would drive up food prices have been abound, but due to the COVID-related economic downturn and falling out-of-house demand, they actually decreased at the start of 2020, reaching a low one year ago. According to the U.N., falling mineral oil prices also factored into the initial deterioration of food prices as many alternative fuels, which are made out of food stocks, saw demand fall. As the crisis wore on and some countries reopened at least temporarily, global demand and prices started to pick up again in the summer of 2020. As the example of palm oil inventories shows, COVID-related disruptions (or those in which COVID-19 is a factor) do have the power to let prices trend upwards in the current market environment.
This chart shows the UN Global Food Price Index.