(Adds Japan weather bureau says El Nino formed, likely to last
* UN world food index up 6 pct in July, higher than in 2008
* Commerzbank latest in Germany to curb agriculture
* FAO economist warns against export restrictions
* Corn prices reach record as importers scramble for US
* US drought worsens, world's focus shifts to looming El
By Catherine Hornby and Karl Plume
ROME/CHICAGO, Aug 10 Global alarm over a
potential repeat of the 2008 food crisis escalated after data
showed food prices had jumped 6 percent last month and importers
were snapping up a shrivelled U.S. grain crop, helping drive
corn prices to a new record.
Ahead of a critical government report on Friday on the state
of the U.S. corn and soybean crops, which have been decimated by
the worst drought in over five decades, the United Nation's food
agency warned against the kind of export bans, tariffs and
buying binges that worsened the price surge four years ago.
"There is potential for a situation to develop like we had
back in 2007/08," the Food and Agriculture Organisation's senior
economist and grain analyst Abdolreza Abbassian told Reuters.
"There is an expectation that this time around we will not
pursue bad policies and intervene in the market by restrictions,
and if that doesn't happen we will not see such a serious
situation as 2007/08. But if those policies get repeated,
anything is possible."
Adding a further risk of strain on global food supplies,
Japan's official weather bureau said on Friday its climate
monitoring data and models indicated the El Nino phenomenon had
already emerged and was likely to last until winter.
So far, most governments have refrained from trade
intervention. Russia's deputy prime minister said this week he
saw no grounds to ban wheat exports, as the country did in 2010,
but he did not rule out protective export tariffs after the end
of the 2012 calendar year.
Abundant rice supplies, sluggish economic growth and
relatively lower oil prices may also help temper the rally in
prices, Abbassian added.
But signs of unusually large early buying and extra
stockpiling are emerging. U.S. corn export sales over the past
week jumped to the second-highest in 10 months, if the sales
figure includes a near-record one-time purchase by private
importers in Mexico, the world's No. 2 importer.
A mix of high oil prices, growing use of biofuels, bad
weather, soaring grain futures markets and restrictive export
policies pushed up prices of food in 2007/08, sparking violent
protests in countries including Egypt, Cameroon and Haiti.
Unlike that demand-driven spike, however, the current rally
in grains has been fuelled largely by a dire drought covering
the U.S. Midwest. After slashing its corn crop estimate by 12
percent last month, the U.S. Department of Agriculture is
expected to report a further 15 percent decline in a report on
Friday, providing the most authoritative view yet of the weather
damage to the world's biggest grower.
Benchmark Chicago corn prices for December delivery,
already up more than 60 percent since mid-June, reached a new
record of nearly $8.30 per bushel. Soybeans jumped 3 percent.
BANK CURBS APPETITE FOR FOOD
The price surge is also reviving a debate over the role of
financial speculators in commodity markets. Big banks and
institutional investors were often blamed for inflating prices
back in 2008, although academic and government studies have
offered conflicting views over the cause.
Commerzbank said it had joined two of its German
peers in restricting food-related investments by stripping
agricultural products from its ComStage ETF CB Commodity EW
Index TR, a small $145 million commodity index fund.
The bank declined to say why it had made the change, but
lobby groups and traders said the motive seemed clear.
"Climbing prices are creating reputational risk for banks,"
said Alexis Dawance, former manager of the agriculturals-focused
Global Agricap Fund.
"The big grain traders probably have much more impact in
food and commodity trading, but this is part of the bigger
picture, with all the fat cat bashing that has been taking
place. ... If food prices continue to rise you will see this
happening more and more."
Whether the major global grain merchants emerge winners or
losers from the latest spike is an open question.
The largest among them, Cargill, reported the
lowest quarterly earnings in over two decades for the period
ended May 31, prior to the U.S. drought, and conceded that it
had been flummoxed by markets that it had long mastered.
"Cargill's global market analysis of supply and demand, and
our trading expertise are long-standing strengths," CEO Greg
Page said. "Even so, we did not trade as well in this year's
markets, which were driven as much by the economic and political
environment as by the fundamentals."
INDEX HIGHER THAN 2008
The FAO Food Price Index, which measures monthly price
changes for a food basket of cereals, oilseeds, dairy, meat and
sugar, averaged 213 points in July, up 6 percent from 201 points
in June, the FAO said in its monthly update.
The rise, which followed three months of declines, was
driven mainly by a surge in grain and sugar prices, while meat
and dairy prices were little changed, the FAO said.
Although below a peak of 238 points in February 2011, when
high food prices helped drive the Arab Spring uprisings in the
Middle East and North Africa, the index is still higher now than
during the food price crisis in 2007/08.
Higher food prices mean higher import bills for the poorest
countries, which do not produce enough food domestically, and a
strong dollar would deepen that impact.
"The very strong appreciation of the dollar, and the surge
in prices, is basically a double blow which is going to be quite
stressful for some of the more fragile countries," Abbassian
The weather outlook appears grim. While mature U.S. summer
crops are now mostly immune to worsening drought conditions,
crucial harvests in places like India and Australia could be
endangered by El Nino, which typically curbs rainfall.
The U.S. government forecaster warned on Thursday that El
Nino now appeared almost certain to set in within the next two
months, although it would likely be weak to moderate strength.
El Nino is a periodic warming of the tropical Pacific and brings
shearing winds that hamper storm formation in the Atlantic and
produce heavy rains in the eastern Pacific.
In its monthly assessment of the six-month outlook for El
Nino, the Japan Meteorological Agency said monitoring data for
July suggested the phenomenon had already emerged.
"The chances are high that the El Nino phenomenon will be
maintained until the winter," the agency said in a statement on
The last severe El Nino was in 1998, when the phenomenon
caused more than 2,000 deaths and inflicted billions of dollars
in damage to crops, infrastructure and mines in Australia and
other parts of Asia.
In the span of just a few months, what was to have been a
year of plenty, helping replenish depleted global stockpiles,
has instead become cause for alarm.
"What is quite certain is that it is not going to be a
season where prices fall below the previous year, which is what
we had anticipated," said Abbassian. "It is going to be another
season of very high prices."
(Additional reporting by Arno Schuetze in Frankfurt, Veronica
Brown in London and Risa Maeda in Tokyo; Writing by Jonathan
Leff; Editing by Mary Milliken, Jackie Frank and Alex