Soaring food prices to end soon?

FT.com: The soaring food prices that have triggered global political and economic turmoil over the past year have finally shown the first tentative signs of stabilising. (refer charts below). The United Nation’s Food and Agriculture Organisation food price index, considered the best measure of global food inflation, saw its first decline in 15 months in April, as wheat, dairy, sugar and soyabean prices fell. Jose María Sumpsi, the FAO’s assistant director-general, told the Financial Times earlier this week that with the exception of corn and rice, food inflation appeared to be “reaching its peak”, although he did not expect prices to start falling. His comments, which are supported by other senior UN officials, and the drop in the index are the most encouraging signs since the global food crisis broke out last summer but they do not mean the problems are over. The FAO index for April, to be published later this month, fell to 216.7 points, down from a revised 217 points in March, after rising 52 per cent in the past 12 months, according to an official who has seen the index. The last time the FAO food index posted a monthly drop was in January 2007, but that proved a blip. This time officials are more confident that some prices will stop rising or even fall as farmers plant more crops to take advantage of record prices amid better weather than last year. Agriculture experts warned prices could continue to rise because of the growing appetite for crops for the biofuels industry and bad weather, such as the cyclone in Burma. They said retail prices could also keep climbing even if wholesale food inflation stabilises, as companies pass on previous increases to consumers.

MyTake: Although the above is a piece of good news, we need to see the food price indices for the next 6 months or more to confirm whether the index has really peaked and stabilised so as to avoid seasonally adjusted prices. I seriously doubt the commodities prices will drop in the longer term. As discussed here , here under * and here as long as the world's current growth engines of China, India, Middle East and emerging countries are firing at all cylinder albeit a slower pace, commodity prices will keep moving up as the demand outstrips supply. The other factors that continues to fuel the commodity prices are weaker USD, excessive money supply, possibility of social and political tension resulting in supply disruption and speculation. As mentioned previously, in a study done by Schroders Singapore, over 200 years -average commodities bull cycle lasted 20 years. Energy bull started 6 years ago while agriculture bull just started 2 years ago. So commodities would probably slowed down for a while before continuing its relentless long journey to the north again latter.

* Germany's economy grew at its best for more than a decade with the country registering 1Q08 GDP growth of 1.5%(4Q07 growth was 0.3%) However, analysts say the growth rate is not sustainable as they expect lower consumer spending in the coming months due to high inflation rates.

* Two newly revised KLSE year end targets came out today. Kenanga forecast is 1,360 (based on y/e 08 14X p/e and estimated earnings growth of 11%). S&P raised its weightings on Malaysian equities to "Market Weight" from "Under Weight" with a target of 1,400(previously 1,300) (Based on ye 08 15X p/e) For information, some of the other brokers' estimates are as follow: JP Morgan 1,500, CITI 1,449 and CLSA 1,150. The KLCI is currently at 1,294.