Food Prices: Here's the Real Story

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The United Nations on Thursday reported food prices eased in April after steadily rising in 2012's first quarter.

However, global soybean price increases remained a top concern at the U.N. Food and Agriculture Organization (FAO).

In a conversation with Reuters, FAO economist and grain analyst Abdolreza Abbassian explained:

"We expect global food prices to remain under downward pressure this year unless there are any unexpected shocks to the supply side, such as unfavorable weather. For such reasons, it is very hard to predict for sure in what direction prices will move.

The only real area that could trigger food price increases would be soybeans which we see in tight supply, then pushing up corn prices as a result."

But Abbassian understates the most important issue in the food markets.

You see, Abbassian implies that food prices remain "somewhat" susceptible to outside volatility in the currency and energy markets.

In fact, this view is focusing on the short-term. It's ignoring the sector's most pressing long-term concerns

Long-Term Issues for Food Prices

The truth is, food prices remain dangerously susceptible to ongoing credit, currency, weather, and energy concerns around the globe.

Higher oil prices alone would have a profound impact across all areas of any food-commodity supply chain. Though difficult to pinpoint exact figures, it's estimated that the price of energy accounts for up to 30% of the underlying costs in certain commodities.

Energy costs are expected to continue increasing this summer in the wake of the Iran embargo. With rising oil and gasoline costs in the global supply chain and increased constriction in conventional supplies, food prices will continue to appreciate as well.

In 2008, we witnessed firsthand how dangerous these factors can be. Food prices exploded significantly. The increase spurred violent protests in Mexico, Indonesia, Egypt, Cameroon and Haiti.

This time around, however, it's going to be much different. Bigger challenges in energy, the environment and agriculture will make things far more uncertain than in 2008.

And long-term, seven billion people (and growing) on the planet with finite amounts of arable land will create even greater uncertainty.

That's why we've been doing our research.

In fact, later this month, some of my colleagues will be releasing a new report on one of the most remarkable discoveries I've seen in ten years in the energy and agriculture industries.

We're facing the most predictable crisis in the commodity markets in the history of the world... and you'll be one of the first to find out about it.

Stay tuned in the coming weeks.

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