Despite regional differences, the overall outlook for inflation in the global economy remains relatively subdued. Yet, underneath this headline figure there are huge variations. Take the huge increase in wheat prices.

Reporting in September, the FAO noted that international wheat prices had soared by 60-80%. It offered some comfort, however, by reassuring that there was no indication of an impending food crisis.

Nevertheless, the FAO notes that there is still no room for complacency. Concluding a day long meeting in late September, it recognized that unexpected price hikes were a major threat to food security and recommended “further work to address their root causes”.

The group recommended exploring alternative approaches to mitigating food price volatility and new mechanisms to enhance transparency and to manage the risks associated with new sources of volatility.

The FAO urged capacity building in areas such as the monitoring of planting intentions, crop development, domestic market information and the different dimensions of futures markets behaviour, including the involvement of non-commercial traders.

The most recent FAO forecast for this year, puts cereal production at 2,239 million tonnes, down 1% on last year, and the third lowest crop on record. This reduction has been primarily attributed to reduced output in the Commonwealth of Independent States. And even with higher cereal price levels, they remain one third below their 2008 peaks.

Yet such an optimistic view of the world is not shared by all.

Rising prices in one area tend to have a nasty habit of feeding through to others. Higher cereal prices feed through into higher feed prices, which in turn result in higher meat prices. While again, there are regional variations, many consumers are still cautious about spending, and higher meat prices are not what they want to see on the supermarket shelves.

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Some two weeks before the FAO’s statements, Luke Chandler of Rabobank’s Agri Markets Research team stated that global grain markets were still precariously balanced following devastating crop losses in the Black Sea region.

He continued that given the region’s much lower feed grain exports, global demand would have to be met by the corn harvest in the US and China, and with wheat production from Argentina and Australia.

However, if only life were this simple. He also warned that the official yield and harvest forecasts in all these regions could be overstated.

And the bad news does not end there. The prolonged drought that devastated crops in Russia, Ukraine, and Kazakhstan could also be a setback to new crop winter plantings. With little end in sight to the hot and dry conditions, many farmers missed the optimal planting window for winter wheat as they waited for rains to improve subsoil moisture.

On top of this, there have been fears that even the areas that miss winter planting and pick up spring planting will have to face lower yields.

Doug Whitehead, commodities analyst at Rabobank, commented: “If the Russian grain market goes into deficit, this will significantly impact the animal feed industry in Russia.

“Total grain usage for animal feed is now approaching 40 million tonnes and demand is still growing. We believe that the low feed grain availability has been the primary driver behind the calls to bank grain exports.”