According to the latest reports from the United Nations Food and Agriculture Organization and the U.S. Department of Agriculture, the next few months will be the key months for determining the major crops for this year, but the limited production of food crops as a whole is a foregone conclusion. Global food prices are unlikely to fall in 2011.

Unfavorable climatic conditions have led to a reduction in crop production, which has led to a rise in food prices. In Europe, crops have been severely reduced due to persistent drought. The "strategic grain" of French consultancy and analysis agency lowered the EU food production forecast this year. The agency pointed out that the drought this spring lasted until May, reaching a critical level that crops could tolerate. Although the rain began in June, it was too late to fundamentally change the fate of production cuts. Countries such as France and Britain faced serious economic losses. Strategic grain forecasts that wheat production will be at least 600 tons, which is the largest loss in grain. In 2011, the EU’s total wheat production was estimated to be 125.6 million tons, a decrease of 1 percentage point on the basis of last year. The central and southern parts of the United States have also experienced dry weather, which has affected the winter wheat harvest. However, excessive rain in some areas of the United States and Canada hindered the spring planting. Since October 2010, there has been no effective precipitation in the main producing areas of winter wheat in North China, Huanghuai, and China, and the area of ​​drought has been large. According to the data from the Chinese Ministry of Agriculture, as of February 24, the areas affected by winter wheat in eight provinces of Hebei, Shanxi, Jiangsu, Anhui, Shandong, Henan, Shaanxi and Gansu were 85.67 million mu, of which 15.67 million mu were severely affected.

The rise in oil prices and the depreciation of the dollar have pushed up food prices. The rising oil price has pushed food prices from two aspects. First, rising oil prices have pushed up the cost of fertilizers and transportation. Second, rising oil prices have pushed up demand for biofuels, which has increased demand for food. The depreciation of the U.S. dollar makes the price of non-U.S. dollar-priced food crops even lower, shifting the supply balance, increasing demand, and driving up prices. At the same time, the devaluation of the U.S. dollar has reduced the income of countries exporting grain after converting to the local currency, resulting in an increase in the stock of food-exporting countries and a reduction in supply. The devaluation of the U.S. dollar increased imports of grain-importing countries and pushed up demand for food.

The reduction in the stocks of corn, soybeans and wheat supported the rise in food prices. At present, the stocks of major crops such as corn, soybeans and wheat are very low globally. This supply situation supports the rise in food prices. This pattern will also increase the volatility of food prices. The expected limited supply, or the possibility of increased demand, will push up food prices. At the same time, it is expected that the increase in food prices will also stimulate the expansion of the sown area. Southern Hemisphere countries have now increased the output of cereals and soybeans. The increase in the output of these countries offsets the reduction in food production in countries with adverse climate, but it also increases the price fluctuations.

Based on the above analysis, we can think that the global food price is unlikely to decline in 2011. Specifically, first, the price of wheat is unlikely to fall. Although 2011 wheat prices will not reach 2008 levels, global production in 2011 is estimated at 670 million tons, which is insufficient to meet global demand. Second, the price of corn continues to be high. The global corn production in 2011 is expected to be 120 million tons. Since developing countries have increased the demand for corn, the price of corn over the level in 2008 is a foregone conclusion. Third, the price of rice is stable. Although the price of rice has risen compared to last year, rice prices have stabilized as the growth in rice output has outpaced consumption growth.

Analyzing the trend of international food prices in 2011 should make us clearly see the severe situation of domestic control of inflation. The traditional import and export structure of China's grain market in 2010 is undergoing major changes. As China's traditional dominant varieties of corn, wheat, rice and other grain imports increased significantly, China has gradually become a net importer of major grain varieties, and it is expected that the trade trend of domestic food from partial exports to full import in 2011 may become even more pronounced. Therefore, the rise in international food prices will also be passed on to China. The rise in food prices is most detrimental to low-income households. Increased food expenditure will inhibit people’s consumption of other products.