Year-Over-Year Percent Change
Giant Leap to New High
The FAO Food Price Index (FFPI) is a measure of the monthly change in international prices of a basket of food commodities.
It consists of the average of five commodity group price indices weighted by the average export shares of each of the groups over 2014-2016.
The index makes a giant leap to another all-time high in March
FFPI Details
- The FAO Food Price Index (FFPI) averaged 159.3 points in March 2022, up 17.9 points (12.6 percent) from February, making a giant leap to a new highest level since its inception in 1990. The latest increase reflects new all-time highs for vegetable oils, cereals and meat sub-indices, while those of sugar and dairy products also rose significantly.
- The FAO Cereal Price Index averaged 170.1 points in March, up 24.9 points (17.1 percent) from February, marking its highest level on record since 1990. This month’s increase reflected a surge in world prices of wheat and coarse grains, largely driven by conflict-related export disruptions from Ukraine and, to a lesser extent, the Russian Federation. The expected loss of exports from the Black Sea region exacerbated the already tight global availability of wheat.
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The FAO Vegetable Oil Price Index averaged 248.6 points in March, up 46.9 points (23.2 percent) from February and hitting a new record high. The sharp rise of the index was driven by higher sunflower, palm, soy and rapeseed oil prices. International sunflowerseed oil quotations increased substantially in March, fuelled by reduced export supplies amid the ongoing conflict in the Black Sea region. Soyoil prices were underpinned by concerns over reduced export availabilities in South America. Noticeably, volatile and higher crude oil values also lent support to international vegetable oil prices.
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The FAO Meat Price Index averaged 120.0 points in March, up 5.5 points (4.8 percent) from February, also reaching an all-time high. In March, pig meat prices registered the steepest monthly increase on record since 1995, underpinned by supply shortfalls of slaughter pigs in Western Europe and a surge in internal demand in light of the upcoming Easter holidays. International poultry meat prices firmed, fuelled by reduced supplies from leading exporting countries following avian flu outbreaks, further impacted by Ukraine’s inability to export poultry meat amid the ongoing conflict. Bovine meat prices also firmed as the tight supply of slaughter-ready cattle persisted in some key producing regions, while global demand remained solid.
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The FAO Dairy Price Index averaged 145.2 points in March, up 3.7 points (2.6 percent) from February, marking the seventh consecutive monthly increase and lifting the index 27.7 points (23.6 percent) above its value a year ago. The upward trend of dairy product prices persisted, mainly supported by the tightening of global markets due to inadequate milk output in Western Europe and Oceania to meet global demand.
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The FAO Sugar Price Index averaged 117.9 points in March, up 7.4 points (6.7 percent) from February, reversing most of the previous three months’ decline and reaching levels more than 20 percent above those registered in the corresponding month last year. The March rebound in international sugar price quotations was mainly prompted by the sharp increase in international crude oil prices, which raised expectations of a greater use of sugarcane for ethanol production in Brazil in the upcoming season. Additional support to world sugar prices was lent by the sustained strengthening of the Brazilian Real against the US Dollar, which tends to restrain producer selling due to lower returns in local currency. However, the good harvest progress and favourable production prospects in India, a major sugar exporter, contributed to easing the price hike and prevented larger monthly price increases.
New Record Highs
FAO Food Price Index, Cereal Price Index, Meat Price Index, and Vegetable Oil Price Index all hit record levels in March.
Ukraine or Russia in every commodity hitting record highs.
Ukraine Corn, Wheat Exports Will Plummet Further
Bloomberg reports Ukraine Corn, Wheat Exports Will Plummet Further, U.S. Says
- Ukraine’s corn exports will drop by another 4.5 million tons to 23 million tons and wheat exports by 1 million tons, according to the U.S. Department of Agriculture’s closely watched World Agricultural Supply and Demand Estimates, or WASDE.
- Russia’s war in Ukraine is upending trade flows out of the critical Black Sea breadbasket region, prompting warnings of food shortages as crucial supplies of wheat, corn and cooking oils are at risk. Food prices are surging at the fastest clip ever and worsening world hunger.
- Grain and oilseed futures have jumped to near record highs and also caused a spike in prices of farm necessities like fertilizer and fuel. Big growing regions like the U.S. and Brazil are under pressure to produce ample crops, though weather woes and inflation in both countries are clouding the season’s outlook.
- With its ports shut, Ukraine is working to ramp up exports via rail, but the flows remain well below normal seaborne trade.
What Can the Fed Do About the Price of Food, Medicine, Gasoline, or Rent?
Expect higher prices still as the war in Ukraine will disrupt this year’s planting season.
On March 20, I asked What Can the Fed Do About the Price of Food, Medicine, Gasoline, or Rent?
I concluded “The answer is nothing or next to nothing. Rates hikes will not impact inelastic items.”
St. Louis Fed President James Bullard to the Rescue
Silly me, my above conclusion was not thinking outside the box.
James Bullard, St. Louis Fed President, won my Hoot of the Day award, yesterday with the obvious answer, change the inputs.
Bullard proposes using the Dallas Fed Mean-Trimmed PCE inflation model which is an amazingly low 3.6%.
Trimmed Mean Inflation
Please consider my January 4, 2022 post Trimmed Mean Inflation Is the Ultimate Absurdity in Inflation Measures
- The Dallas Fed chopped off items with a combined weight of 24.07% from the low end.
- This was “balanced” by chopping off items with a weight of 32.50% (100-67.5) at the top end.
- Everything that went up by more than 9% annualized was chopped off the top culminating with gasoline up 103.5% and air transportation up 112.7%.
Ultimately, the Dallas Fed discarded 56.57% of the entire PCE, heavily weighted by discarding high inflation items to arrive at a preposterous 2.8% year-over-year measure of inflation.
If you throw away 57% of consumer items and not factor in housing at all, the current measure of trimmed mean is 3.6%.
And by that measure the Fed is not behind the curve.
Whatever It Takes
Shrinking inflation by curbing demand isn’t easy because people need somewhere to live and they have to eat.
Instead, we need more creative thinking like tossing out beef, pork, and cooking oil and substituting beans, rice, and water instead.
A one pound bag of pinto beans is $1.79 and that makes 12.5 cooks servings.
A one pound package of ground beef is about $4.00 and that will make four quarter-pound servings at a cost of $1.00 each.
The cost of a serving of beans is only $0.14.
To assist in cutting food inflation, we just need to assume everyone will substitute pinto beans for ground beef. We also need to assume people will be as happy eating pinto beans instead of ground beef.
Alternatively, via trimmed mean, we can simply assume the price of ground beef does not matter but pinto beans do. This means we need to put some food items back in the trimmed mean PCE.
I suggest lopping off 50% of the top end, balance that by lopping off 20% of the bottom, then substituting pinto beans for ground beef and prime rib.
If we do whatever it takes, we can easily arrive at any target the Fed wants us to believe.
The Problem and the Solution
The Fed cannot easily control the CPI or PCE because rate hikes are a blunt instrument. they work with a lag, and demand destruction is inelastic.
More creative thinking is the clear solution and Bullard leads the way with his proposal to use trimmed-mean PCE.
In case you missed it, please consider St. Louis Fed President Says “Fed is Not Far Behind the Curve”
Creative reporting will make things look better. Things will not be any better of course, but Biden and the Fed can crow about the improvements.
This post originated at MishTalk.Com.
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That would mean we are going to get deflation. How much remains to be seen. The sanctions caused an additional spike in commodities that were headed down prior
Rusty Kemp for years grumbled about rock-bottom prices paid for the cattle he raised in central Nebraska, even as the cost of beef at grocery stores kept climbing.
He and his neighbors blamed it on consolidation in the beef industry stretching back to the 1970s that resulted in four companies slaughtering over 80% of the nation’s cattle, giving the processors more power to set prices while ranchers struggled to make a living. Federal data show that for every dollar spent on food, the share that went to ranchers and farmers dropped from 35 cents in the 1970s to 14 cents recently.
for the good of its victims may be the most oppressive. It would be
better to live under robber barons than under omnipotent moral
busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity
may at some point be satiated; but those who torment us for our own
good will torment us without end for they do so with the approval of
their own conscience. They may be more likely to go to Heaven yet at the
same time likelier to make a Hell of earth. This very kindness stings
with intolerable insult. To be “cured” against one’s will and cured of
states which we may not regard as disease is to be put on a level of
those who have not yet reached the age of reason or those who never
will; to be classed with infants, imbeciles, and domestic animals.”
retire. All that knowledge, skill, history, etc is literally walking
out the door daily and there is no easy way to replace it.”
Last week I mentioned Dave Rosenberg and a few others think we may be talking about deflation soon. That is so out-of-the-box right now, I feel I should explain more. I’ll do that by quoting Dave himself, from his March 31 letter.
“To little fanfare, the U.S. Federal Reserve lowered its estimates of the natural rate of interest and potential GDP growth in March. Those tweaks have significance, not because they reflect the true economic situation, but because of what they represent, namely a Fed trying to build a case for aggressive interest rate hikes to assuage political pressure. Potential real GDP growth is much higher than what the Fed is suggesting, meaning that there is more slack in the economy than what is being portrayed in Fed projections. For contrarian investors, that translates to preparing for a U.S. outlook that is deflationary rather than inflationary, and one that involves fewer rate hikes than what is being priced in by OIS markets—a strategy that will become more enticing as price-boosting impacts of supply chain bottlenecks and labor shortages fade…
“[T]he reality is that upcoming fiscal drag (which barely gets a mention from the Fed), the impact of declining real incomes on consumption, and an inverting yield curve, are all pointing to a sharp moderation in U.S. real GDP growth this year to below potential growth, which translates to diminishing price pressures ahead. In other words, a moderation of inflation is coming, regardless of Fed rate hikes.
“The Fed’s downgrades of the natural rate of interest and potential growth have to be taken with a grain of salt. Rather than reflecting reality, those tweaks were meant to paint a rosy picture of the economy (particularly the labor market) and to warrant aggressive interest rate increases to bring down inflation. Potential real GDP growth is in fact much higher than what the Fed is suggesting, meaning there’s more slack in the economy than what is being portrayed in its projections. In other words, the outlook is deflationary rather than inflationary, something that will become more apparent as supply chain problems and labor shortages that are now artificially boosting prices eventually fade.”
Unlike me, Dave has not turned in his Team Transitory t-shirt. He’s doggedly maintained the inflation, while real, will pass soon. The reason is because the “growth” we’ve seen wasn’t really growth; it came mainly from monetary policy and fiscal stimulus whose effects are fading quickly. Likewise, the present inflation comes from transitory supply chain and labor shortages.
If the economy has as much hidden slack as Dave thinks, it’s quite possible the combination of a tighter Fed and inflation expectations will bring down wages, raise unemployment, and tip the economy into a more traditional recession, instead of a stagflationary one. As Rosie said again this Friday morning:
“Inflation will come down, but that is because of what the Fed is going to do with demand, and a ‘soft landing’ is not going to be sufficient to deal with this sort of supply dynamic.
“Has anyone noticed that the peak in inflation invariably occurs in the context of an economic recession (or quickly heading into one)?”
Again, that’s not what I expect but Dave has been doing this a long time and is usually right. I take him seriously. You should, too, particularly if you’re buying inflation hedges. You may need to lift those hedges sooner than expected.
I happen to love them. Best way to cook them is simmer for a few hours, drain, and then add ketchup and barbecue sauce. It goes really well with corn bread. This was a staple meal at my home growing up.
Yes, I grew up poor.