Singapore least affected by US drought

Food weighting in inflation is lowest in Singapore at 22.1%.

According to Morgan Stanley, drought in the US has caused crop conditions to deteriorate, raising concerns over corn and soybean crop yields. Conditions for corn and soybeans, it said are at their worst in more than 20 years, with only 31% of the corn crop and 34% of the soybean crop rated good or excellent.

While wheat prices have also risen, Morgan Stanley commodities strategist, Hussein Allidina, expects wheat prices to remain the laggard of the group, as wheat will be weighed down by adequate global and US stocks. However, any further supply disruptions in Russia, Argentina or Australia, he said, would present asymmetric upside risk to wheat prices.

Given that the US is one of the world’s largest exporters of these commodities, the prices of corn, soybean and wheat have shot up recently in reflection of these concerns. However, the rise in food prices, Allidina said is not widespread at the moment, as prices of other soft commodities such as rice, coffee, sugar and cocoa have remained relatively steady so far.

In terms of food weighting in inflation, emerging markets in Asia are more likely at risk to inflationary pressures than developed markets like Singapore.

Here's from Morgan Stanley:

Emerging Asian countries with low per capita income including China, India, Indonesia, and Thailand have CPI weightings of 30-46%: Hence, persistently higher food prices will affect these economies more adversely as compared with higher per capita income economies on a relative basis.

Food inflation has been trending down in the region, with the exception of India and Indonesia: In China, food inflation has decelerated quickly, to 3.8% YoY in June-12 from a peak of 14.8% YoY in Jul-11. Korea’s food inflation has also decelerated, to 3.2% YoY in June-12 from a peak of 8.3% in Aug-11. Food inflation in India has rebounded to double-digit levels, while Indonesia’s food inflation has been steadily rising over the past four months as favourable base effects peter out.