Tuesday, September 4, 2012

Why is FAO's food price index up only 6 percent?

In today's NYT, we have a report about a weak monsoon and crop devastation in India:
"Drought has devastated crops around the world this year, including corn and soybeans in the United States, wheat in Russia and Australia and soybeans in Brazil and Argentina. This has contributed to a 6 percent rise in global food prices from June to July, according to United Nations data"
Corn is up about 60 percent since June, wheat and soybeans are up respectively about 25 and 16 percent.  The production weighted average of these three crops usually tracks the FAO index pretty well.  To see this, here's a plot of US prices for these three key staples and FAO's food price index. (I made this graph a little while ago, so it doesn't include last month's spike.)

So why is FAO food price index up just 6% (the implicit reference in the NYT article) given the much larger spikes in corn, soybeans and wheat?

Rice prices--another key staple--remains subdued due to large inventory buildups in India and other places.

Still, I don't get it.

I hope this means the world is dealing with crop shortfalls better than in 2008.  Maybe other relatively minor crops are making up the difference. But I wonder if it's just a matter of time before the FAO index shows a larger spike as well.

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