buyers have battled rising prices for raw
material commodities such as metals and
energy over the past few years, but now
for many, a new enemy is at hand: “Agflation,”
a term coined it appears by analysts from
Merrill Lynch earlier this year.
other grain prices are at 10-year highs.
Prices for corn and derivative products
like corn syrup have risen dramatically,
“fueled” in part by strong demand
for corn for use in ethanol production.
firm Goldman Sachs’ commodity price
index is up about 25% in the past 5 months.
While the index includes energy and metals
components, much of the recent rise has
been driven by the agricultural components
of the index.
to corn, prices are also on the rise in
soybeans; cotton is at a three-year high.
April research report “Global
Agriculture & Agflation,”
Merrill Lynch analysts Richard Bernstein
and Jose Rasco write: “Food prices
are rising, putting upward pressure on producer
and consumer inflation. Agflation has begun.
Given the expanding constraints on food
supply, the changing demand for food, and
the entrance of the energy business as mass
consumers of food products, it is not surprising
to see food prices rapidly putting upward
pressure on overall inflation.”
products are notoriously cyclical, with
huge amounts of supply often coming in when
prices rise to get supply-demand equation
back in balance. But as with metals and
energy, hugely rising demand from India,
and other fast growth nations, the ethanol
factor, and other historical anomalies may
mean Agflation will plague buyers and consumers
for awhile this time.