By Alejandro A. Tagliavini *
As anticipated in a previous note (Stock markets in unprecedented situation), world food prices fell in June for the first time in 12 months, driven by the decline in vegetable oils, cereals and dairy products, according to the unreliable bureaucracy of the (multi) state FAO with which, however, this time several analysts agree. World cereal harvests would fall – to almost 2,817 million tons in 2021 – compared to the previous estimate, but still on track to reach an annual record.
The FAO Price Index (PI), which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 124.6 points last month compared to May’s revised 127.8 from 127.1. Although still in year-on-year terms, prices rose 33.9% in June.
Vegetable oil PI fell 9.8% in June, month-on-month, including soybean and sunflower oil. While that of cereals fell by 2.6% although with an interannual rise of 33.8%. While that of corn fell 5.0%, in part due to higher-than-expected yields in Argentina and better crop conditions in the US.
International rice prices also fell in June, hitting 15-month lows, as high freight costs and a shortage of containers continued to limit export sales. Dairy products fell 1.0% monthly, with all components of the index declining: butter registered the largest fall, affected by a rapid decline in global import demand and a slight increase in inventories, especially in Europe.
An exception would appear to be the IP for meat, which rose 2.1% since May, and prices for all types of meat rose as increases in imports from some East Asian countries offset the slowdown in purchases of meat from China.
The projection for world cereal utilization in 2021/22 was lowered by 15 million tons with respect to the previous month, 2,810 million tons, still 1.5% more than in 2020/21. Global cereal stocks at the close of the 2021/22 seasons are now expected to rise above their opening levels for the first time since 2017/18.
It happens that global demand falls since the rebound of the global economy -after the strong downturn due to state repressions on the markets with the excuse of «the pandemic»- would slow down. For instance, in the global ‘locomotive’, the US, the improvement in the labor market has stalled again last week, as the number of people filing initial claims for unemployment benefits increased over the week previous.
Data from the Labor Department showed that initial claims for unemployment benefits rose to 373,000, which fell short of expectations that pointed to new lows of 350,000. The number of long-term unemployed -more than 27 weeks- increased in June after declining the previous two months and the «wind chill» is that a plateau has reached.
Figures that are known when concern grows that the rebound in the economy may be slowing down, according to the most popular belief, as the «stimulus» fade and the spread of new variants of Covid-19 threatens to provoke new havoc. However, the real cause is that not all the repressions have yet been lifted and, above all, that the celebration of the «stimulus» supposedly destined to counteract the effects of the repressions is being paid.
“Stimulus” financed with higher taxes and exaggerated inflation. Both are destructive of the economy, taxes for obvious reasons, because they take away productive capital from the market, and inflation basically because it takes away purchasing power.
Thus, ironically, as bulk food prices fall, many experts, such as Michael Snyder, recommend hoarding food from supermarkets: “For decades, Americans have not had to worry about food prices… Our supermarkets have always been full, and prices would always be roughly the same. Unfortunately, things are changing…”.
And, clearly, merchants are anticipating a rise in the price of food that reaches the table of consumers. According to The Wall Street Journal, supermarkets are feverishly stockpiling food, stocking up on everything from sugar to frozen meat before it gets more expensive, bracing for what some executives anticipate will be some of the highest price increases in recent memory. According to The Wall Street Journal, all this stockpiling «is driving shortages of some commodities,» but this shortage is expected to be only temporary.
Snyder says some companies are buying up to 25% more food. For his part, David Smith, CEO of the largest US wholesaler, Associated Wholesale Grocers, said they have been buying 15-20% more products over the same period last year, particularly packaged foods, with a long life. While Michigan-based retail chain SpartanNash has bought 20-25% more than usual, including frozen meat.
It is highly ironic that, as the price of bulk food falls, a significant rise is expected at the consumer’s table. And, although it is hard to believe, both effects that seem contradictory have the same thrust: that of inflation.
The US government promises to keep spending money – ergo, issuing and raising taxes – in a riotous fashion and the Fed would keep pumping mountains of fresh cash. The Biden administration does not appear to have an «off button,» and neither does the Fed. The US national debt is moving toward the $ 29 trillion mark very rapidly, and the Fed’s balance sheet has more than doubled over the past year.
The rise in taxes added to inflation causes a slowdown in the economy, ergo, in wholesale demand, which translates into a drop in bulk prices. But, at the same time, inflation – the excess of emission over demand – causes a devaluation of the currency that is seen as a rise in prices that the final consumer pays. For example, oil prices, ergo gasoline, continue to rise and this makes food transportation more expensive. According to the AAA Gasoline Price Index, the average price of a gallon in the US is up 56% from a year ago.
In the same way, all costs (taxes, salaries, inputs …) of intermediaries and retailers rise. Thus, inflation – largely due to «stimulus» that seem more like «stimulus» to decline – causes a double negative effect.
On the one hand, it increases food prices on the consumers table and, on the contrary, it discourages production as bulk prices fall or at least stagnate, such as that of the “golden goose” for Argentina, soybeans:
And so exports and production could fall in a snowball -and, thus, tax collection- with which the agricultural sector would be harmed, which seems to be evidenced in the curve with a downward trend of two icons of the Argentine farming, which came from going up a lot on Wall Street, such as Cresud:
* Senior Advisor at The Cedar Portfolio and Member of the Advisory Council of the Center on Global Prosperity, de Oakland, California