International food prices have risen to their highest level in two years, fueled in part by a drought in Russia that lifted the cost of wheat, a U.N. agency said Wednesday.

Rising global food prices are byproduct of currency devaluation across the globe. Yet, the headline discussion remains fixed on the message of deflation.

Spot Commodity Prices: CRB Spot Index (1947 – Present);

16-Raw Industrial Spot Price (1935-1947);

Great Britain Wholesale Price of All Commodities (1885-1935)

Foodstuffs, which have underperformed the spot index since 2009, has begun to outperform again. That last time this happened Gold accelerated from 2007 to 2008.

The talk of deflation is nothing more than misdirection away from the message conveyed by the secular trends.

According to the International Grain Council (IGC), Wheat consumption globally will hit a record high in 2010-11 even as production is forecast to drop because of a drought in Russia, creating conditions for a further rally in prices.

IGC has cuts its Wheat production estimate for 2010-11 by 7 million tonnes to 644 million tonnes on account of the Russian shortfall and adverse weather in Western Australia. Russia’s output is estimated to drop by 25% on account of drought.

IGC has projected a record wheat consumption for the year. The agency expects the wheat consumption will go up by 2 million tonnes to 657 million tonnes.

IGC has also lowered its forecast for level of wheat stocks at the end of the 2010-11 season by 8 million tonnes to 184 million tonnes, down 13 million tonnes from a year earlier.

On August 5, when Russia first announced its temporary ban on wheat exports, wheat prices, already at a-two year high at the time, skyrocketed. However, even at the latest peak, global wheat prices remain well below the average March 2008 level of $440 per tonne, suggesting scope for further rally in prices.

Courtesy: JSMineset

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