Rome - 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 shriveled 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.
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.