As inflation finally dips, will rising grain prices spoil the party?

Fears about high grain prices pushing up the cost of food around the world were firmly back on the agenda this week after unusually hot and dry weather in the US sent grains prices soaring.

Maize prices in Chicago hit a 10-month high this week, after the USDA downgraded its expectations for this year’s harvest. In the UK, concerns are growing about the price of feed wheat, which recently hit a 12-month high of about £175/tonne, sparking fears the cost of production of grain-intensive foods such as pork and poultry could once again be set to rise.

But analysts are stressing that, despite concerns about the US, the situation is not hopeless. The drought in the main grain-producing states of the US Midwest as well as a prolonged dry spell in the Black Sea regions of Russia and Ukraine, and in the Northern China plain are an issue, says Mintec senior analyst Robert Miles.

“But fundamentally, we still have a pretty decent world grain crop to look forward to and stocks are relatively healthy.”

AHDB/HGCA senior analyst Charlotte Garbutt agrees it is too early to write off this year’s harvest. “There is still a considerable way to go before the harvest and still time for things to turn around,” she says.

As for wheat specifically - whose high price triggered massive food price inflation in 2010 - there has been some loss of production from the US wheat belt as a result of the dry weather, but buyers still have “braces”, says Miles. “There are alternative supplies they can switch to, as recent rain in many parts of the EU has helped crops to improve from the poor conditions seen earlier in the year.”

How well markets can keep a lid on prices will to a large extent depend on the weather between now and the autumn. “UK wheat was looking reasonably good at the end of June, but now we need warmth and dryness,” says Garbutt.