Don't look for cheaper food yet, even as grain prices drop
Consumers can't yet bank on a year of cheaper food, despite predictions for bulging grain crops in the United States and other major global producers that have dragged futures prices back from last year's record highs.
The forecasts, analysts say, are just that - with seeds not yet in the ground for the all-important U.S. corn crop that is used to feed cows and produce cereal products and other foods.
The next few months will be crucial in determining prices, as weather conditions will ultimately determine the size of the harvest.
"There's not enough assurance here yet of lower grain prices in the long run to start marking down those food items," said Steve Meyer, president of Paragon Economics.
After a bruising 2012, which featured a historic U.S. drought, dryness in Eastern Europe and the third spike in global food prices in four years, farmers have dusted themselves off to start a new growing season.
Grain prices, which touched record highs late last summer, have been under pressure recently as some livestock producers have cut herd sizes due to high feed costs. Meanwhile, the acreage dedicated to key crops has increased and reserves look fatter than previously thought.
The U.S. Department of Agriculture (USDA), in a report issued on March 28, forecast that U.S. growers will harvest a record 14.6 billion bushels of corn and a record 3.4 billion bushels of soybeans - bumper crops that would help replenish razor-tight supplies.
The USDA also said corn inventories as of March 1 were 8 percent higher than traders expected, sparking the biggest weekly loss in corn prices in 21 months last week at the Chicago Board of Trade.
Prices are down 25 percent since reaching a record high in August.
Investors have been turning their backs on commodity index funds, which take long positions in a range of commodities including grains, due to higher returns offered by equity markets.
The Thomson Reuters/Jefferies CRB index, which tracks a range of commodities, has fallen around 8 percent in the last six months while the Dow Jones Industrial Average index has risen about 10 percent over the same period.
USDA's planting intentions survey fulfilled expectations flagged by the United Nations Food and Agriculture Organization (FAO), whose food price index has stabilised from historically high levels.
Still, the markets may have run ahead of themselves, FAO chief economist Abdolreza Abbassian said.
"There has been a price correction, but that probably tended to give too much credit to optimism over very favourable growing conditions in the coming months," Abbassian told Reuters.
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