United Nations’ Food Price Index Reached All-time High in January

No matter what they say about Fed’s intentions to quickly raise interest rates in order to beat inflation, the continuing commodities’ price upsurge strongly suggests formation of an apparent cyclical trend. Thus, the United Nations’ Food Price Index reached an all-time high in January, and the highest level in "real" terms since the early 1970s.

According to the UN FAO report published on February 3, 2022, the gauge for world food prices surged in January again, largely bolstered by supply-side constraints for vegetable oils. The FAO Food Price Index tracking monthly changes in the international prices of commonly-traded food commodities, averaged 135.7 pts in January, 1.1% higher than in December.

The FAO Vegetable Oils Price Index led the rebound in January, increasing by 4.2% MoM to reach an all-time high. Prices for all major oils rose, also supported by rising crude oil prices. Palm oil prices were largely underpinned by concerns over a possible export reduction from Indonesia, the world’s leading exporter, while soy oil prices were backed by increased backlogged imports, particularly from India. In its turn, grapeseed oil prices were pushed higher by lingering supply tightness, and sunflowerseed oil prices were impacted by supply tightness and surging global import demand.

With wheat (W_1:COM) facing security of supply concerns underpinned by geopolitical instability in Eastern Europe, prices have hit a decade high.

Meanwhile a smaller-than-expected soybean (S_1:COM) harvest in Brazil, which we covered previously, exacerbated by the increasing demand from bio-fuel producers like Valero (VLO) and Renewable Energy (REGI), has driven soybean prices to a decade high as well.

Compounding problems for consumers, spot natural gas prices in Europe remain at near record highs, driving fertilizer prices globally to nearly 3x pre-pandemic levels representing another reason for food prices to continue rising in 2023. On top of that, Russia recently restricted export of ammonium nitrates as part of a plan to ensure affordable fertilizer supply to Russian farmers; China is banning phosphates, a major component of commercial fertilizer, through the end of 2022 for the same reason.

Historically rising food prices have been a bonanza to farmers, which in return has been a boon to tractor and other agricultural equipment manufacturers like Deere (DE) and Caterpillar (CAT), though with rising fertilizer costs hurting farmers, and high steel and labor costs challenging manufacturers.