Drought in many parts of the world depletes food supply and adds pressure to jack up prices of food worldwide. Reuters Red-hot food inflation that has vexed policy-makers around the world seemed to take a breather last month, when corn and wheat prices tumbled on reports that crop shortages were easing. The sell-off was also driven by global economic worries that prompted funds to exit grains in droves. But prices are climbing again, and have already made up half of June's losses. The sell-off masked an unnerving reality: The world remains just one Midwest heat wave or global crop disaster away from another damaging price run-up that could revive concerns over food security. With grain supplies still tight and worldwide demand growing quickly, food price inflation looks set to remain high and even worsen in the years ahead. It will likely take years of near-perfect crops to replenish global stockpiles of corn and wheat, the staples of the world food system, and minimize the risk of price spikes. “The bottom line remains that on a worldwide basis, the interest for these commodities, grains in particular, has evolved over the last five to seven years such that we need big crops all the time,” said Bruce Scherr, chief executive of Informa Economics. Stockpiles of corn in the United States, the No. 1 producer, are forecast to drop to 16-year lows — 870 million bushels — by summer 2012. As a percentage of use, that would be the second-tightest since the Dust Bowl devastated crops in the 1930s. This time around, crops are historically large, but demand is also surging due to Chinese consumers and US ethanol producers. As for wheat, the USDA projects world inventories will improve by June 2012 to reach 182 million tonnes, up from their 26-year low of roughly 126 million in 2007/2008 during the last run-up in prices. But growing demand, notably from the livestock sector, will keep prices high, as will a scarcity of high-protein, high-quality milling wheat. It all adds up to pressures ahead. The United Nations' Food and Agriculture Organization said this month that in 2011/12, improving crops should push world food prices down from a year ago — but not dramatically. “The upward pressure on some of these food prices has maybe been tempered for the minute,” said Bill Lapp, president of Advanced Economic Solutions, a commodity analytical firm based in Omaha, Nebraska. “But I don't think it has gone away.” US corn futures at the Chicago Board of Trade set a record high near $8 a bushel on June 10, then plunged 23 percent in the next three weeks. CBOT corn fell 15.8 percent during June, its biggest monthly drop in two years. Most of the sell-off came the last day of the month after the US Department of Agriculture stunned the trade by reporting much larger US corn plantings and old-crop stocks than analysts had expected. __
