March 7, 2012
By Mamta Badkar
Business Insider recently spoke with commodities guru Jim Rogers about oil prices, gold, and the global economy. He also shared with us what life is like in Singapore.
This is the first of our multi-part interview with Rogers. Here, he offers his thoughts on commodities and the global economy.
What is feeding into oil prices at the moment?
Iran obviously, is one thing, but another is in the U.S. it’s the infrastructure problem. We have oil but it’s in the wrong places. On the east coast, they use imported oil, and imported oil is higher because of Iran. And it comes from Europe. North Sea production is in decline. There are supply-demand reasons that oil prices are high in many parts of the world. And known reserves of oil are in decline worldwide. And the IEA is going around telling people that known reserves are in a steady decline and we’re going to have a huge problem in a decade or two, a gigantic problem, unless somebody finds a lot of oil very quickly. So underneath the supply-demand, shorter term it’s infrastructure and Iran probably.
At what level do you think oil prices will break the back of the American recovery?
We are going to have a slowdown. Such is the staggering debt that America has, it has caused more and more of a drag on our economy. I would also point out to you that every four to six years we’ve had an economic slowdown in the U.S., since the beginning of time, so by 2012, 2013, 2014, we are well overdue for an economic slowdown for whatever reason. Whether it’s caused by high oil or what, we’re going to have a slowdown in the foreseeable future.
How do you see oil prices impacting consumers in emerging markets, especially in Asia, when many of them are struggling to rein in inflation and drive growth?
Everybody is paying higher prices for oil and that obviously impacts consumption everywhere and its not just oil, its food and everything else that’s going up. There’s inflation everywhere, the U.S. lies about it, I mean the U.S. government lies about inflation but there’s inflation everywhere. I mean I don’t know if you go shopping, but if you do, you know prices are up. The government says they’re not, I don’t know where they shop. Everybody else’s prices are up.
If you could own / invest in just one commodity which would it be?
I guess it would have to be one of the agricultural commodities, it would depend on which is down the most but it would be agriculture I can tell you that.
February 13, 2012
By Grant McCool and Nick Brown
When commodities brokerage MF Global imploded, the FBI and federal prosecutors were quick to launch an investigation to pursue what seemed obvious to outspoken regulators and lawmakers: laws were broken and crimes were committed.
More than three months later, it is far from clear that anyone will face criminal charges over the disappearance of more than $600 million in customer money as MF Global spiraled towards bankruptcy in the brokerage’s final, frantic days in the last week of October.
So far, the MF Global investigation is not tracking the early progress of other high-profile financial scandals such as RefCo, where former Chairman Phil Bennett was arrested within days of the disclosure that the futures firm had been hiding losses for years.
Lawyers and people familiar with the MF Global investigation of the firm that was run by former Goldman Sachs head Jon Corzine say that even though the hunt is still on to find out whether or not officials at MF Global intended to pilfer customer money in a desperate bid to keep the brokerage from failing, the trail at this point is growing cold.
To date, scant evidence of criminal intent has emerged in company emails, no former or current employees have sought to cut a deal to provide testimony about potential wrongdoing and seasoned defense lawyers say they are not seeing the tell-tale signs of a hot criminal investigation.
A source familiar with the work of Louis Freeh, trustee for the MF Global holding company that filed for Chapter 11 bankruptcy protection, says investigators have yet to find evidence of fraud in the multi-faceted and complex investigation.
The source, who declined to be identified because Freeh’s office is still conducting its inquiry, says there was plenty of “chaos” at MF Global in its waning days, but “no evidence of fraud.” Freeh is a former Director of the Federal Bureau of Investigation.
Ellen Davis, a spokeswoman for the office of the Manhattan U.S. Attorney, declined to comment. Randall Samborn, a spokesman for the office of the U.S. Attorney in Chicago, also declined to comment.
Criminal and regulatory investigations can of course shift gears at any time if new information comes to light. But adding up the pieces at this stage of the inquiries, the odds look long of criminal charges ever stemming from the collapse of MF Global because of the lack of bad motives or an intent to steal or deceive, the legal standard for a criminal case.
October 20, 2011
The Economic Collapse Blog
Most people have no idea that Wall Street has become a gigantic financial casino. The big Wall Street banks are making tens of billions of dollars a year in the derivatives market, and nobody in the financial community wants the party to end. The word “derivatives” sounds complicated and technical, but understanding them is really not that hard. A derivative is essentially a fancy way of saying that a bet has been made. Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before. Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion. Keep in mind that the GDP of the entire world is only somewhere in the neighborhood of $65 trillion. The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them “financial weapons of mass destruction”. For now, the financial powers that be are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down. When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.
Most people don’t talk much about derivatives because they simply do not understand them.
Perhaps a couple of definitions would be helpful.
The following is how a recent Bloomberg article defined derivatives….
Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.
The key word there is “speculation”. Today the folks down on Wall Street are speculating on just about anything that you can imagine.
The following is how Investopedia defines derivatives….
A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
A derivative has no underlying value of its own. A derivative is essentially a side bet. Usually these side bets are highly leveraged.
At this point, making side bets has totally gotten out of control in the financial world. Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it. This system is almost entirely unregulated and it is totally dominated by the big international banks.
Over the past couple of decades, the derivatives market has multiplied in size. Everything is going to be fine as long as the system stays in balance. But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.
The amount of money that we are talking about is absolutely staggering. Graham Summers of Phoenix Capital Research estimates that the notional value of the global derivatives market is $1.4 quadrillion, and in an article for Seeking Alpha he tried to put that number into perspective….
If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.
The notional value of the derivative market is roughly $1.4 QUADRILLION.
I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective.
$1.4 Quadrillion is roughly:
-40 TIMES THE WORLD’S STOCK MARKET.
-10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.
-23 TIMES WORLD GDP.
It is hard to fathom how much money a quadrillion is.
If you started counting right now at one dollar per second, it would take 32 million years to count to one quadrillion dollars.
Yes, the boys and girls down on Wall Street have gotten completely and totally out of control.
In an excellent article that he did on derivatives, Webster Tarpley described the pivotal role that derivatives now play in the global financial system….
Far from being some arcane or marginal activity, financial derivatives have come to represent the principal business of the financier oligarchy in Wall Street, the City of London, Frankfurt, and other money centers. A concerted effort has been made by politicians and the news media to hide and camouflage the central role played by derivative speculation in the economic disasters of recent years. Journalists and public relations types have done everything possible to avoid even mentioning derivatives, coining phrases like “toxic assets,” “exotic instruments,” and – most notably – “troubled assets,” as in Troubled Assets Relief Program or TARP, aka the monstrous $800 billion bailout of Wall Street speculators which was enacted in October 2008 with the support of Bush, Henry Paulson, John McCain, Sarah Palin, and the Obama Democrats.
Most people do not realize this, but derivatives were at the center of the financial crisis of 2008.
They will almost certainly be at the center of the next financial crisis as well.
For many, alarm bells went off the other day when it was revealed that Bank of America has moved a big chunk of derivatives from its failing Merrill Lynch investment banking unit to its depository arm.
So what does that mean?
An article posted on The Daily Bail the other day explained that it means that U.S. taxpayers could end up holding the bag….
This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.
This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.
So did you hear about this on the news?
Today, the notional value of all the derivatives held by Bank of America comes to approximately $75 trillion.
JPMorgan Chase is holding derivatives with a notional value of about $79 trillion.
It is hard to even conceive of such figures.
Right now, the banks with the most exposure to derivatives are JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo and HSBC Bank USA.
Morgan Stanley also has tremendous exposure to derivatives.
You may have noticed that these are some of the “too big to fail” banks.
The biggest U.S. banks continue to grow and they continue to get even more power.
Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets. Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets.
These banks have gotten so big and so powerful that if they collapsed our entire financial system would implode.
You would have thought that we would have learned our lesson back in 2008 and would have done something about this, but instead we have allowed the “too big to bail” banks to become bigger than ever.
And they pretty much do whatever they want.
A while back, the New York Times published an article entitled “A Secretive Banking Elite Rules Trading in Derivatives”. That article exposed the steel-fisted control that the “too big to fail” banks exert over the trading of derivatives. Just consider the following excerpt from the article….
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
So what institutions are represented at these meetings?
Well, according to the New York Times, the following banks are involved: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.
Why do those same five names seem to keep popping up time after time?
Sadly, these five banks keep pouring money into the campaigns of politicians that supported the bailouts in 2008 and that they know will bail them out again when the next financial crisis strikes.
Those that defend the wild derivatives trading that is going on today claim that Wall Street has accounted for all of the risks and they assume that the issuing banks will always be able to cover all of the derivative contracts that they write.
But that is a faulty assumption. Just look at AIG back in 2008. When the housing market collapsed AIG was on the wrong end of a massive number of derivative contracts and it would have gone “bust” without gigantic bailouts from the federal government. If the bailouts of AIG had not happened, Goldman Sachs and a whole lot of other people would have been left standing there with a whole bunch of worthless paper.
It is inevitable that the same thing is going to happen again. Except next time it may be on a much grander scale.
When “the house” goes “bust”, everybody loses. The governments of the world could step in and try to bail everyone out, but the reality is that when the derivatives market comes totally crashing down there won’t be any government on earth with enough money to put it back together again.
A horrible derivatives crisis is coming.
It is only a matter of time.
Stay alert for any mention of the word “derivatives” or the term “derivatives crisis” in the news. When the derivatives crisis arrives, things will start falling apart very rapidly.
June 1st, 2011
By: Margo D. Beller
Wall Street is having a hard time figuring out what to do now that the U.S. economy appears to be sputtering and yields are so low, Peter Yastrow, market strategist for Yastrow Origer, told CNBC.
“What we’ve got right now is almost near panic going on with money managers and people who are responsible for money,” he said. “They can not find a yield and you just don’t want to be putting your money into commodities or things that are punts that might work out or they might not depending on what happens with the economy.
“We need to find real yield and real returns on these assets. You see bad data, you see Treasurys rally, you see all bonds and all fixed-income rally and then the people who are betting against the U.S. economy start getting bearish on stocks. That’s a huge mistake.”
Stocks extended losses after the manufacturing fell below expectations in May and the private sector added only 38,000 jobs during the month.
“Interest rates are amazingly low and that, thanks to Ben Bernanke, is driving everything,” Yastrow said. “We’re on the verge of a great, great depression. The [Federal Reserve] knows it.
“We have many, many homeowners that are totally underwater here and cannot get out from under. The technology frontier is limited right now. We definitely have an innovation slowdown and the economy’s gonna suffer.”
However, he said he wouldn’t sell stocks.
“Any bears out there better be careful because the dividend yields on these stocks look awesome relative to all the other investment vehicles out there,” Yastrow said. “So bears are going to have to find a new way to express their discontent with the U.S. economy.”
June 1st, 2011
By: Jessica Hartogs
Investors should prepare themselves for a third round of quantitative easing, Simon Maughn, co-head of European equities at MF Global, told CNBC Wednesday.
“The bond market is going in one direction which is up-falling yields which is telling you quite clearly the direction of economic travel is downwards. Downgrades. QE3 (a third round of quantitative easing) is coming,” said Maughn. “The bond markets are all smarter than us, and that’s exactly what the bond markets are telling me.”
“What’s interesting in the bond markets over the last couple of sessions is, you’ve seen human traders trying to step in and call this turn in the market the same way that equities have done … and they have just been mowed down by the quant funds which are all about leverage, all about momentum and are betting on bond prices going up,” added Maughn.
Once again, the United States will step up as the marginal buyer of bonds, said Maughn.
“One more big injection of cash into the bond market should take you through at least the summer season into the beginning of the fourth quarter.”
“That cash injection will have the normal inflationary knock-on impact, driving back up commodities, supporting industrial stocks, dragging the financials up with them… I think it’s all about the monetary injection trade,” Maughn told CNBC.
May 12th, 2011
By: Yatin Karnik
U.S. gold turned and fell on Wednesday. Gold dropped $14.80, or 0.98%, to close at $1,501.00 an ounce. Gold prices hit an intraday low of $1,495.90 and a high of $1526.20 an ounce. Gold prices are right at Bollinger band’s middle band. Relative strength indicator is sitting at 52.38.
Silver futures prices for July delivery, now the most active contrast, dropped a whopping $3.31, or 8.60%, to close at $35.16 per ounce on the Comex in New York. Silver prices hit an intraday low of $35.00 and a high of $39.46. The relative strength indicator sits at 37.13.
For every stock that rose, there were three stocks that declined. Total volume of shares that traded on New York Stock Exchange was north of 980 million. The correction in commodities last week is the first shaking of the tree that should not be ignored. In my opinion it was an early indication of short term top being put in both commodity markets and equity markets. I think, the recent turbulence in equities and especially in commodities market is not transitory. These head winds are here to stay in the short to medium term.
On the currency front, the euro fell more than 1% against the U.S. dollar, because Standard & Poor’s thinks that Portuguese banks may need additional government support. China’s CPI (consumer-price index) climbed 5.3% in April year-over-year, while wholesale inflation climbed 6.8%, year-over-year. Analysts’ expectations were 5.2% for the CPI and 7.3% for wholesale inflation. In my opinion, when some traders cite China inflation numbers behind Wednesday’s commodities sell-off, that’s just not true. These numbers were mixed at best, with CPI above expectation but wholesale inflation well below expectation.
Wednesday’s sell-off triggered a brief and unusual halt in petroleum products’ futures trading. This prompted the CME Group, that operates the New York Mercantile Exchange and electronic trading platform CME Globex to expand daily trading range allowed by the exchange. Intuitively, expanding daily trading range would allow for higher volatility and larger price swings, but the thesis behind expanding the trading range is to allow traders with long exposure to commodities futures to exit their positions safely.
For the long term investor, both gold and silver are undoubtedly heading higher. But for a swing trader, silver will pose an excellent buying opportunity to get long at lower prices in coming day or two. I think silver and gold, both will settle the week lower. For the faint heart, staying away from precious metal for next couple of trading sessions might be a good idea. For aggressive traders, best risk reward is presented by getting short exposure to silver.
If you believe in the gold and silver story, you can take advantage of the drop in gold prices by getting short exposure to GLD (iShares Gold Trust) or UGL (ProShares Ultra Gold). You can also benefit by getting long exposure to GLL (ProShares UltraShort Gold). You can take advantage of the drop in silver prices by getting short exposure to SLV (iShares Silver Trust) or AGQ (ProShares Ultra Silver). You can also benefit by getting long exposure to ZSL (ProShares UltraShort Silver).
April 4th, 2011
By: Douglas McIntyre
U.S. food prices have been rising in the last year, but it seems the growth is only just beginning. A sharp jump in commodities’ prices this year will soon result in sticker shock for American consumers.
Large food companies have recently announced that they will raise the prices they charge grocery retailers for commodities-based products. For example, a chocolate bar will cost more soon: Hershey last week announced a 10% increase for most of its confectionery goods.
Of course, straightforward price hikes could cause consumers to buy less of those products or to choose less costly store brands. So in many cases, food companies are trying a different tactic: Keeping the price of an item the same while decreasing the amount of food in the package. The company recoups the costs of the rise in commodities and hopes consumers don’t notice that they’re getting less of the product for the same price.
Food companies have no obligation to tell customers about the smaller packages, but may suffer a backlash from consumers who notice how the packaging trick works. Here are some of the shrinking products that you might notice in your grocery aisles:
Company: Kellogg (K)
Commodities: corn, wheat, sugar
Size Reduction: roughly 15%, or 2.4 ounces, on average
Kellogg, which makes cereal such as Apple Jacks and Corn Pops, has passed higher grain costs on to consumers. In 2008, the company reduced the amount of cereal in its boxes by an average of 2.4 ounces. And in February, the company announced that it will raise the price of its cereals 3% to 4%. According to a U.S. Agriculture Department report in March, “higher wheat commodity costs should begin to affect cereal and bakery product prices over the next few months, causing prices to rise 3.5% to 4.5% overall in 2011.”
Commodities: cocoa, dairy, nuts
Size Reduction: 11%, or 0.41 ounces
Supposedly in response to pleas from obesity activists, the Mars Company split their “King Size” Snickers bar in half so that it could be more easily shared between two people. What calls the nobility of the company’s intentions into question is that, in addition to making the cut, Mars also reduced the total amount of candy in each package from 3.7ounces to 3.29 ounces — an 11% decrease — while keeping the price the same.
Company: PepsiCo (PEP)
Commodities: frozen orange juice concentrate, gasoline
Size Reduction: 8%, or 5 ounces
A series of prolonged frosts last year sent citrus prices up 11.5% and drove up the price of frozen orange-juice concentrate to several-year highs. Meanwhile, the cost of transporting the concentrate has gone up as gas prices have increased. In response, Tropicana has made two adjustments: It increased the price of its gallon jugs by 5-8% and stealthily reduced the size of its half-gallon cartons from 64 ounces to 59 ounces. This 5-ounce reduction represents nearly an 8% decrease in size.
Company: General Mills (GIS)
Commodity: dairy, sugar, cocoa
Size Reduction: 12.5%, or 2 fluid ounces
The luxury-ice-cream company reduced the size of its standard container to significantly less than a pint, cutting it 12.5% from 16 fluid ounces to 14 fluid ounces. To make the smaller package less obvious, the company cleverly kept the top the same size, so it looks identical from above, but tapers dramatically in the middle. Haagen-Dazs’s cheaper brands, Edy’s and Breyer’s, have cut their portions as well. Daily prices increased just over 1% in 2010, but are expected to rise as much as 5.5% in 2011.
Chicken of the Sea Tuna
Company: Thai Union Group
Size Reduction: 17%, or 1 ounce
Chicken of the Sea’s albacore tuna, previously sold in 6-ounce cans, now comes in 5-ounce cans. Rising tuna prices amid a worldwide shortage of the fish are partly to blame. Other tuna brands also have shrunk their can sizes, a trend which has been going on for years. Just over a decade ago, tuna was most commonly sold in 7-ounce cans.
Company: PepsiCo (PEP)
Commodity: wheat, corn, potatoes
Size Reduction: 12.5% – 20%
With all the air included in chips packaging, it is easy for manufacturers to reduce the amount of chips in the bags without drawing attention. PepsiCo reduced the Lay’s “Family Size” potato-chip bag from 16 ounces to 14 ounces in 2009. Bags of Doritos, Tostitos, and Fritos now contain 20% fewer chips than they did in 2009, according to The New York Times. Even smaller bags have been reduced by a quarter of an ounce. Rising gain prices have driven the changes.
February 25th, 2011
By: Charles Hugh Smith
As prices for commodities such as cotton, sugar and grains skyrocket, many financial commentators have been pointing the finger at Federal Reserve Chairman Ben Bernanke’s “easy money” policies of zero interest rates (ZIRP) and quantitative easing (QE2) as a major cause.
The Fed intended these two policies to lower long-term interest rates and to nudge investors into riskier assets, thus stimulating growth. At least one part of that strategy is working. By lowering the yields on traditional financial investments such as bonds to near-zero, the Fed has essentially forced trading desks and hedge funds to scour the globe for higher yields.
Many traders and investors have found that higher yield in commodities, which is where speculative money is now flowing in abundance, helping to push up prices. Because the price of wheat, for example, is roughly the same everywhere in a global market, these rapid price increases are destabilizing poorer countries where much of household income is devoted to food.
Charges and Countercharges
Global demand for many commodities is outstripping supply, and that imbalance is a key factor in higher prices around the world. But a global economy awash in low-interest, speculative “hot money” seeking higher yields is further fueling imbalances.
Fed officials have faced pointed criticism from nations such as China and Germany, which see the Fed’s policies as firing up inflation and suppressing the U.S. dollar. Fed Chairman Bernanke has countered these charges by identifying the problem as one of currency valuations. He suggests that other nations should offset rising commodity prices by letting their currencies climb in value.
Bernanke’s protests, however, have a hollow ring: Clearly, skyrocketing commodity prices aren’t just a currency-trade issue. For example, consider this cotton-price chart, which has “gone parabolic.” Can anyone seriously claim that the “solution” to this situation is for China to allow its currency, the yuan, to appreciate? Is the yuan the real cause of wheat and corn both shooting up 80% in 2010?
The reason why Bernanke’s claim is so transparently nonsensical is that commodities are rising everywhere, not just those originating in China. Despite official assurances that inflation in the U.S. is now running at a modest 0.7% annually, by one measure, it’s actually hitting an annual rate of 2.5%. By another, it’s already a white-hot 10.6%.
This chart shows how rising prices are built into the supply chain, with the result being costs of intermediate and crude goods are rising smartly.
Inflation is running hot around the world, not just in China and the U.S. This also suggests that the issue isn’t one that can be resolved with currency adjustments.
Even though inflation appears to be lower in the U.S. than in other major economies, it’s hitting the average U.S. household hard because wages aren’t rising along with prices. Indeed, according to the U.S. Census Bureau, real median household income in 2009 was $49,777, a 5% decline from the 1999 peak of $52,388 (adjusted for inflation).
This is in marked contrast to nations such as China, where workers are gaining substantial raises (21% in Beijing, for example), to counter rapidly rising costs.
January 10th, 2011
By: Jonathan Benson
Figures recently released by the Food and Agriculture Organization (FAO) index of 55 food commodities indicates that worldwide food prices hit a record high in December. Though the costs of some food commodities like rice, corn and soy actually decreased, oil seeds and sugar jumped significantly due to various factors including erratic weather and droughts, according to reports.
In the past, such ups and downs on the commodity market did not immediately affect actual food costs for consumers, but some experts say that this is no longer the case, and that “food inflation” will occur right alongside the commodity price gains. And rapid food inflation has already taken place in India, for example, with recent reports indicating that the country experienced an overall food inflation rate of 18 percent in 2010.
Low food stocks, droughts and poor weather conditions have all contributed to the escalating food crisis, which has led many nations to cut off exports in order to save supplies for their own populations. And the resulting global shortages only exacerbate the problem further as importing nations scramble to source needed commodities for their own populations.
Abdolreza Abbassian, a senior economist at the FAO, explained in a Bloomberg report that since not all commodity prices are rising, the overall indicator can be deceiving. Even so, prices across the board may increase as a result of a domino effect from the commodities that are in short supply, or even from the same conditions like droughts and poor weather that have caused shortages and price increases in the other categories.
Rising global food prices and supply uncertainty are just another reason why self-sufficiency is vital to long-term survival. Individuals who grow their own food and live off their own land as much as possible will not be affected by volatile supply and demand issues that affect the global food market.
January 6th, 2011
By: Hugh Collins
Global food prices rose to a record high last month, overtaking even the levels seen during the 2007-2008 food crisis.
The UN Food and Agricultural Organization said its food price index rose to 214.7 points last month, an increase of almost 4.2% from November, according to The Financial Times. The index tracks the wholesale cost of commodities including wheat, corn and meats.
In 2007 and 2008, rocketing food prices caused riots in countries including Haiti and Bangladesh and helped boost inflation in many large economies.
Abdolreza Abbassian, senior economist with the FAO, said the current situation is “alarming” and warned “it will be foolish to assume this is the peak.”
In developed economies, companies including McDonald’s (MCD) and Kraft (KFT) have raised retail prices to cope with higher food costs.
The price of agricultural commodities has jumped after a series of poor harvests caused by adverse weather. The situation only got worse when major produces such as Russia and Ukraine imposed export restrictions.