Price worries again threaten world food outlook

By Russell Blinch and Jasmin Melvin - Analysis

WASHINGTON (Reuters) - Like a lion stalking its prey, another food price spike lurks as a threat to tentative global economies and poor nations in particular this year.

Last year's run-up in food prices sparked riots in developing nations, drove commodity markets to record highs and prompted export bans that roiled the flow of world trade.

With the worldwide recession, prices have been retreating in the developed world. But they remain stubbornly high in many poorer nations, and with the return of tight supplies and high demand grain markets are again flashing warning signs that could prove expensive for world consumers.

"I would say our (grain) markets are going to be quite well supported in this early part of the growing season, and I think potentially explosive at the first sign of any serious weather adversity after the crop finally is planted," said Rich Feltes, senior vice president at MF Global Research in Chicago.

U.S. food prices jumped 5.5 percent last year -- the biggest jump since 1990 -- but are expected to moderate this year with a 3-4 percent rise tempered by lower dairy and meat prices.

Food prices remain high in developing countries, however, and are clinging to record levels in some locales, according to the U.N's Food and Agriculture Organization. The agency said "food emergencies" persist in 32 countries.

Led by soybeans, grain prices have been on a roll since March, mainly due to a poor outlook for crops in Brazil and Argentina and an extraordinary buying binge by China.

U.S. soybean sales to China are up 42 percent from a year ago to 18.3 million tons as the country rebuilds its supplies.

WATCHING CLOSELY

"Keeping people fed is always job one of most governments...," said Dan Basse, president of the consultant AgResource. "As you see Saudi Arabia, China, others are now building strategic stockpiles, knowing that if anybody has a weather calamity or there's a supply disruption that there will be a food price shock."

Higher prices for grains, even if they don't reach last year's levels, are going to be hard on developing countries and could undermine the global economy.

"I think it is a risk from the standpoint that it's going to add to food inflation at a time when consumers globally are still reeling under the massive wealth destruction that's occurred because of this debacle in our real estate and equity markets," said MF Global's Feltes.

"Under the adverse weather and/or drought scenario for the summer of 2009, if that were to occur it would clearly be an element that would slow the recovery," he said.

With South America's crop a disappointment, much focus is on the world's breadbasket, the United States, to come through with a big crop for corn, soybeans and wheat. And so far it's getting off to a soggy, slow start, but it could still produce solid results.

"It's a crop that people are going to be watching very, very closely to see how the planting progresses over the next few weeks," said Joseph Glauber, chief economist at USDA. "Because the stocks levels are such we don't have the luxury of having huge carry-ins to buffer any shocks -- much like last year."