Here is the opening from Bloomberg's report today:

David Fuller's view This has been a predictable and very familiar story for Fullermoney subscribers. Today, the key questions are: What happens next, and what will be the ramifications? To answer these, we must first understand why food prices are soaring. There are five major contributing factors behind the price rises, of which the first is by far the most important:

1. Last year's series of poor crop yields due to adverse weather conditions in many of the world's major agricultural regions.

2. Demand is increasing as a consequence of global population growth and a rapidly emerging middleclass, plus the misuse of foods for biofuel.

3. Commodity speculation has increased, not least in tracker funds, as investors are attracted by the performance of futures prices.

4. Government hording is increasing, particularly by totalitarian regimes alarmed by food riots.

5. Most commodities are priced in US dollars - a soft currency in recent years.

Returning to my earlier questions regarding what happens next and what are the ramifications, although grain and bean prices are still below 2008's damaging heights, I have yet to see any clear technical evidence that the price spirals are over. If this was just a matter of speculation, I would expect prices to fall back even more quickly than they have risen, once the fashion changed.

Unfortunately, global stocks are historically low for many staple foods. This problem will be resolved by higher crop yields following a return to normal weather patterns. However, this favourable development is unlikely to occur before 2H 2011, at the earliest, although futures prices would discount an improvement as it became apparent. Meanwhile, there is a possibility that rationing may be necessary, not least for corn (maize).

If food prices move even higher before eventually peaking, as I fear they will, then the US Commodity Futures Trading Commission (CFTC) will be under additional pressure to limit speculation in commodities which were never meant to be an asset class. Here are some related papers:

Speculative Limits - CFTC
Fact Sheet: Proposal to Sep Position Limits in Energy Futures
Commodity Speculation Limit Rules Divide CFTC


Spiralling prices for staple foods sow widespread hardship and even starvation among the world's poor. Food riots can cause governments to fall. Soaring food prices have often been mentioned as a grievance by protesters during the recent and continuing uprisings in the Middle East.

Here are monthly and weekly charts for some of the food commodities listed in the Library - note the number of Brobdingnagian bases: corn (monthly & weekly) - soybeans (monthly & weekly) - wheat (monthly & weekly) - rough rice (monthly & weekly) - oats (monthly & weekly) - live cattle (monthly & weekly) - lean hogs (monthly & weekly) - cocoa (monthly & weekly) (mainly due to strife in the Ivory Coast following a disputed election result) - sugar (monthly & weekly) - coffee (monthly & weekly) and orange juice (monthly & weekly). Higher prices for crude oil (Brent, monthly & weekly) and (NYME, monthly & weekly) can only aggravate this problem.