US drought hikes commodity prices, highlights long term challenges

For the third time in five years, the world is braced for another food crisis as the worst US drought in fifty years pushes some agricultural commodity prices, such as corn and soybeans, to record highs.

A report from Fidelity Worldwide Investment notes that aside from the unfavourable weather conditions that have disrupted supply, there are some important long-term factors at play on the demand side which imply a growing susceptibility to supply-side shocks.

The Fidelity report examines the likely short term economic effects of the current food price spike and the long-term prospects for food in the context of a growing global population, dietary changes in developing economies, and declining arable land.

The report notes that wheat prices have also risen strongly. With a reduced corn food crop many are also blaming US laws that divert large amounts of corn for bio-fuel use.

Food price hikes reduce consumers’ ability to spend on other items, particularly in emerging markets, and can reduce central banks’ ability to provide stimulus for fear of stoking inflation.

However, Fidelity says there are a number of investment opportunities in stocks that are involved in becoming part of the solution to the world’s food challenges.

Read the report here: 21st Century Themes – Food


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