Food Price Spike of 2008 set to Repeat

The main cause of the food price spike in 2008 was speculation. Secondarily it was supply shortage, but primarily, it was speculation, meaning that big money investors threw their money into commodities, driving up their price. Warning signs are blipping that we may see a repeat of those events soon, driven again by a worldwide flood of money, just waiting for an investment vehicle to flood into.

http://business.asiaone.com/Business/My%2BMoney/Opinion/Story/A1Story20100106-190014.html

Global food prices are rising again with the United Nations Food and Agriculture Organisation (FAO) food price index hitting 168 points in November, the fourth consecutive month of increase and the highest since September 2008. While this is still about 21 per cent lower than the most recent peak in June 2008 when the index hit 213.5 points, FAO does note that the index has never exceeded 120 points prior to the price spike between 2007/2008.

Several reasons have been highlighted for the rising prices. However, FAO has possibly for the first time highlighted the 'growing appetite by speculators and index funds for a wider commodity portfolio investments on the back of enormous global excess liquidity', as exacerbating the situation.

This mirrors the view of World Bank president Robert Zoellick who said recently that with so much liquidity in global markets, 'you could see additional moves towards the agricultural commodities sector if there were perceptions of market shortages'.

Speculation in agricultural commodities may not have reached fever pitch yet but with food shortages expected in 2010, it could.

Jim Rogers, one of the world's most astute investors has been bullish on commodities in general for several years. On agricultural (or soft) commodities, he says: 'Food inventories worldwide are at the lowest in decades as the world continues to consume more than it produces. We even have a shortage of farmers now since agriculture has been such a terrible business for three decades. We should all hope prices go higher or there may soon be a time when there will be little or no food at any price.'