Investors' focus on food is a recipe for supermarket hikes
Fears over a global food crisis, rising fuel prices and increased subsidies for biofuel have seen investors flocking into the food and agriculture sector.
Heavy buying by hedge funds and institutional investors has been causing prices to soar in recent months. This will be felt by shoppers, with subtle price rises in supermarkets.
Two weeks ago, corn prices surged 8.5 per cent in just 24 hours, representing the largest one-day jump in trading prices since 1973. This price hike was driven by news that production of corn would be 4 per cent lower than expected in the US. Corn prices have risen 71 per cent since a low this year after using corn for ethanol production picked up.
Wheat prices have jumped 46 per cent since June as drought and fires in Russia and eastern Europe -- major wheat producers -- saw output slashed. Russia's ban on exports at the end of August also caused prices to soar. As well as the obvious hit to bread prices, other products such as beer may see price rises.
Soya bean prices hit a 16-month high last Friday on hopes that demand for the commodity would remain high in the US. Increased exports to China, coupled with hopped-up demand from vegetable oil and animal feed producers, saw prices hit $12.14 a bushel -- the highest level since June 2009.
The start of the La Nina weather pattern fuelled fears that rain in South America and Asia could hit supplies of cotton, which hit record price level on Friday. Cotton prices have risen 10 per cent this week already. Chinese demand is also key to the price rises, with Nomura highlighting a trebling of cotton imports in September compared with the same period last year.
Prices for sugar futures have risen by 17 per cent this year, with the latest spike prompted by concerns over droughts in key sugar-producing regions of Brazil. Some analysts and traders are forecasting a doubling of raw sugar next year, suggesting prices could hit 60 cents a pound.
Cadbury and other chocolate bar makers have introduced price rises to consumers in recent weeks as cocoa supplies have fallen short of demand. However, prices remain well off the peaks of 2009.