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UN: Oil Surge Deepens Food Price Headache
USAgNet - 03/07/2011

The oil market rally prompted by Middle East unrest has worsened further prospects for world food security, the United Nations said, as it revealed that the cost of eating had reached a fresh record high.

The rise in prices of Brent crude by some 13% over the last two weeks, with New York crude jumping 18%, had come at an inopportune moment from crop production terms, as North Hemisphere growers are planning sowing campaigns, the UN's Food and Agriculture Organization said.

"This adds even more uncertainty concerning the price outlook, just as plantings for crops in some of the major growing regions are about to start," said David Hallam, director of the FAO's trade and market division.

And further "spikes" in oil prices "could further exacerbate an already precarious situation in food markets," Mr. Hallam added.

Besides raising farm fuel bills, oil costs also have a bearing on the costs of fertilizers and sprays, so posing a significant upward threat to growers' cost of production, report AgriMoney.

Indeed, separately, Parr Rosson, an economist at Texas's farming-focussed A&M University, warned that higher fuel bills "could put some real economic pressure on costs" in U.S. farming, which would feed through into higher food bills.

The "surge" in oil markets "adds to concerns over high food prices", the FAO said, as it revealed that the prices had risen for an eighth successive month in February to a new all-time high.

The 2.2% increase from January was, for a second month, led by the dairy sector, where prices rose by 4%, boosted by "firm world demand".

Grain prices were also strong, up 3.7% month on month, reflecting "mostly further gains in international corn prices, driven by strong demand amid tightening supplies".

Growth in wheat prices was tempered by "downward pressure later in the month following some improvements in weather in China, and reports of possible delays in purchases by some of the countries hit by the recent wave of political unrest", the FAO said.

The Middle East and North Africa, where civil protests are centred, encompass some the world's biggest wheat importers, including top-ranked Egypt, where Hosni Mubarak was ousted as president last month.

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