Fears of food inflation grow after Russian invasion
Sign up now: Get ST's newsletters delivered to your inbox
KUALA LUMPUR • A spectacular rally in prices of crops from wheat to oil palm has increased concerns that food costs will get a lot higher. Those fears got worse yesterday, after Russian forces attacked targets across Ukraine.
The crisis has driven wheat to the highest level since 2012, while drought in South America has dimmed the outlook for soya bean supplies.
Oil palm, whose derivative is used in thousands of products from cookies to shampoo, is on a record-breaking run as a labour shortage crimps output in major producer Malaysia. This could feed through to higher prices at grocery stores, further squeezing household budgets already strained by rising inflation.
The Russia-Ukraine crisis "represents a major concern for vegetable oil, wheat and corn", said Mr Oscar Tjakra, a senior analyst at Rabobank in Singapore.
Russian forces hitting cities in Ukraine sparked a rally across commodities yesterday, driving Brent crude oil to above US$100 a barrel for the first time since 2014 and sending Chicago wheat futures almost 6 per cent higher.
Ukraine and Russia account for about a quarter of the global trade in wheat, a fifth of corn sales, and 80 per cent of worldwide sunflower oil exports.
Wheat extended gains from the highest close since 2012 and rose 5.4 per cent to US$9.3475 a bushel at 1.46pm Singapore time. In Malaysia, palm oil climbed as much as 6.2 per cent to a record RM6,351 a tonne.
Exacerbating the inflation outlook is the surging cost of fertiliser. Farmers scaling back fertiliser use could trigger lower crop yields and push up food prices even higher globally.
There are signs that China, the world's top importer of agricultural products, is concerned about the rally. Beijing announced this week that it will sell edible oil and soya beans from state reserves to boost domestic supplies.
"The proportional increase in prices on supermarket shelves will, of course, be smaller as commodity prices are usually only a relatively small proportion of the prices of final goods," said Mr Tjakra.
BLOOMBERG
