May 17, 2011, 4:55 AM EDT
By Luzi Ann Javier
May 17 (Bloomberg) — Global food prices are set to extend gains as production struggles to keep pace with demand, said Rabobank Groep and Armajaro Trading Ltd., potentially pushing up costs for Tyson Foods Inc. and Kellogg Co.
“My view is the only way would be up” in the longer term, Jasper van Schaik, regional head Europe Agri Commodities at Rabobank, said in an interview in Singapore yesterday. “We can’t create any more land,” said Richard Ryan, chief executive officer of Armajaro Trading, in a separate interview.
World food costs are near a record as growing demand from China and India outpaces harvests hurt by flood and drought, the United Nations estimates. Rising prices have pushed 44 million people into poverty in the past year, helped fuel conflict and unrest in the Middle East and North Africa and spurred central banks from Brasilia to Beijing to increase interest rates. Corn may have the biggest potential for gains, Schaik said.
“Corn has a pretty bullish stance fundamentally” with low inventories and the risk of increasing Chinese imports, he said. Rabobank Groep is the world’s biggest agricultural lender and the bank’s Wayne Gordon in Sydney correctly predicted in March that sugar and cotton prices would decline.
The United Nations food price index climbed nine times in the past 10 months, and held near a record in April after the worst drought in at least half a century in Russia and floods in Australia pushed up prices of everything from wheat to beef.
Tyson, Kellogg
Tyson Foods, the biggest U.S. meat processor, estimates the increase in corn and soybean costs is approaching $500 million from the year ago, said James V. Lochner, chief operating officer, on a conference call May 9. The company has “no choice but to pass along these costs,” he said.
Grain supplies are relatively limited and demand is rising, said John A. Bryant, chief executive officer of Kellogg, the largest U.S. maker of breakfast cereal, on May 4.
“We would look at 2012 and say yes, it’s probably going to be inflationary,” he said on a conference call. “We are in a long-term upward trend on cost of goods.”
As the world population grows, there will be pressure on prices unless crop yields can increase to meet demand, said Armajaro’s Ryan yesterday. Armajaro Trading, founded in 1998, specializes in sourcing cocoa, coffee and sugar and employs more than 2,000 people globally, according to its website. Both Schaik and Ryan were in Singapore for a commodity conference.
Global Stockpiles
Increasing prices may curb demand and prompt farmers to plant more, increasing supplies. U.S. corn stockpiles before next year’s harvest may climb to 900 million bushels from a 15- year low of 730 million this year, the Department of Agriculture said May 11. Wheat inventories may total 702 million bushels, more than the 683 million expected by analysts, the USDA said.
While reserves may increase, for some agricultural commodities global inventories have been shrinking relative to the growth in annual consumption, according to USDA data.
“The world cannot afford any crop problem this year, anywhere,” Steve Nicholson, a commodity procurement specialist at International Food Products Corp., a distributor and adviser on food ingredients in Fenton, Missouri, said last month. “Without a cushion of inventories, any production hiccup in the northern hemisphere this year will be catastrophic.”
–Editors: James Poole, Thomas Kutty Abraham
To contact the reporter on this story: Luzi Ann Javier in Singapore at [email protected]
To contact the editor responsible for this story: James Poole at [email protected]
Article source: http://www.businessweek.com/news/2011-05-17/food-prices-extending-gains-may-boost-costs-for-tyson-kellogg.html
