Food Price Spike of 2008 set to Repeat

The main cause of the food price spike in 2008 was speculation. Secondarily it was supply shortage, but primarily, it was speculation, meaning that big money investors threw their money into commodities, driving up their price. Warning signs are blipping that we may see a repeat of those events soon, driven again by a worldwide flood of money, just waiting for an investment vehicle to flood into.

http://business.asiaone.com/Business/My%2BMoney/Opinion/Story/A1Story20100106-190014.html

Global food prices are rising again with the United Nations Food and Agriculture Organisation (FAO) food price index hitting 168 points in November, the fourth consecutive month of increase and the highest since September 2008. While this is still about 21 per cent lower than the most recent peak in June 2008 when the index hit 213.5 points, FAO does note that the index has never exceeded 120 points prior to the price spike between 2007/2008.

Several reasons have been highlighted for the rising prices. However, FAO has possibly for the first time highlighted the 'growing appetite by speculators and index funds for a wider commodity portfolio investments on the back of enormous global excess liquidity', as exacerbating the situation.

This mirrors the view of World Bank president Robert Zoellick who said recently that with so much liquidity in global markets, 'you could see additional moves towards the agricultural commodities sector if there were perceptions of market shortages'.

Speculation in agricultural commodities may not have reached fever pitch yet but with food shortages expected in 2010, it could.

Jim Rogers, one of the world's most astute investors has been bullish on commodities in general for several years. On agricultural (or soft) commodities, he says: 'Food inventories worldwide are at the lowest in decades as the world continues to consume more than it produces. We even have a shortage of farmers now since agriculture has been such a terrible business for three decades. We should all hope prices go higher or there may soon be a time when there will be little or no food at any price.'

Another Food Price Riser: Cap and Trade Laws

Apparently, under the new cap and trade legislation, money will be available for people who plant trees (to be paid for by industries who need to pollute). The net result: farm land taken out of production to grow trees, so food supply falls, leading price rises. It is also understood by all that increased fuel and fertilizer costs are baked into the legislation as well, which will also serve to drive up food costs.

http://www.washingtontimes.com/news/2009/dec/29/forests-vs-food-study-worries-agriculture-chief/


Agriculture Secretary Tom Vilsack has ordered his staff to revise a computerized forecasting model that showed that climate legislation supported by President Obama would make planting trees more lucrative than producing food.

The latest Agriculture Department economic-impact study of the climate bill, which passed the House this summer, found that the legislation would profit farmers in the long term. But those profits would come mostly from higher crop prices as a result of the legislation's incentives to plant more forests and thus reduce the amount of land devoted to food-producing agriculture.

The legislation would give free emissions credits, known as offsets, to farmers and landowners who plant forests and adopt low-carbon farm and ranching practices. Farmers and ranchers could sell the credits to help major emitters of greenhouse gases comply with the legislation. That revenue would help the farmers deal with an expected rise in fuel and fertilizer costs.

Allison Specht, an economist at the American Farm Bureau Federation, said other studies have largely confirmed the results of the EPA and Agriculture Department analysis. "That's one of the realities of cap-and-trade legislation. The biggest bang for your buck for carbon credits is planting trees," she said.

Food will Never Get this Cheap Again

Great article by AEP in the Telegraph analyzing the world food commodities market, which has been stuck in deflation, while other commodities are inflating. Increasing high food demand due to population growth in food-importing regions seems to guarantee high prices in the future.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6432538/Food-will-never-be-so-cheap-again.html

The world's grain stocks have dropped from four to 2.6 months cover since 2000, despite two bumper harvests in North America. China's inventories are at a 30-year low. Asian rice stocks are near danger level. Yet farm commodities have largely missed out on Bernanke's reflation rally in metals, oil, and everything else. Dylan Grice from Société Générale sees "bargain basement" prices.

Wheat has crashed 70pc from early 2008. Corn has halved. The "Ags" have mostly drifted sideways over the last six months. This divergence within the commodity family is untenable, given the bio-ethanol linkage to oil.

The world population is adding "another Britain" every year. This will continue until mid-century. By then we will have an extra 2.4bn mouths to feed.
China and Southeast Asia are switching to animal-protein diets as they grow wealthy, as the Koreans did before them. It takes roughly 3-5kgs of animal feed from grains to produce 1kg of meat.
A report by Standard Chartered, The End of Cheap Food, said North Africa and the Middle East have already hit the buffers. The region imports 71pc of its rice and 58pc of its corn. It lacks water to boost output. The population is growing fast. It will have to import, and cross fingers.
The UN says global farm yields must rise 77pc, which means redoubling Norman Borlaug's "green revolution". It will not be easy. China's trend growth in crops yields has slipped from 3.1pc a year in the early 1960s to 0.9pc over the last decade
"We've all heard the stark anecdotes: precious topsoil weakened by over-farming, dust clouds darkening the Asian skies, parched land becoming desert and rivers running dry," said Mr Grice.
Since 2000, China has lost nearly 1,400 square miles each year to desert. Urban sprawl is paving over fertile land in the East. Water supply from Himalayan glaciers is ebbing. The Yellow River has been reduced to "an agonising trickle". It no longer reaches the sea for 200 days a year.
Farmers are draining the aquifers. Environmentalist Ma Jun says in China's Water Crisis that they are drilling as deep as 1,000 metres into non-replenishable reserves. The grain region of the Hai River Basin relies on groundwater for 70pc of irrigation.
China's water troubles are not unique. North India lives off Himalayan snows as well. Nor can we take fertiliser supply for granted any longer since "peak phosphates" threatens.

One can be Malthusian about this. Grizzled commodity guru Jim Rogers certainly is. "The world is going to have a period when we cannot get food at any price, in some parts." He advises youth to opt for a farm degree rather than an MBA, if they want to make serious money.

Concerns Mount Over Sharp Rise in Food Costs

The food shortages and price spike of last summer feels like a distant memory at this point, especially after the collapse in commodity prices over the winter. But.... They're baaaaa'aaack! Investor speculation, falling dollar, supply shortages, all conspiring to drive an up-spike again, and here we are at just the beginning of summer. From an article originally in the Financial Times:

After a year worrying about the piggy bank, the world economy is turning its attention to the cupboard. Almost unnoticed, agricultural commodities prices have returned to levels last seen at the start of the 2007-2008 food crisis, prompting concerns about a fresh rise in food costs. The increase in soybean, corn, and wheat prices – to their highest level in eight to nine months and up more than 50 per cent from their December lows – comes on the back of strong Chinese demand, a forecast of lower supply due to reduced planting, and the impact of a drought in Latin America. Traders say hedge funds and other big institutional investors, including sovereign wealth funds from the Middle East, have poured money into the agricultural market, helping to drive commodities prices higher as the US dollar weakens.

The surge in prices is a reminder of how the world’s food security has deteriorated, after years of comfortable surpluses, analysts and executives say. “Agricultural markets are fairly nervous,” says an agricultural commodities analyst at Barclays Capital in London. “We are not in the comfortable food surplus environment of the 1980s and 1990s.” Mike Mack, chief executive of Syngenta, one of the largest manufacturers of chemicals for agriculture, echoes a widely held view when he says that although the “headlines from the past year on the food crisis have been replaced by those on the economic crisis”, the “long-term challenge to produce enough food” has not disappeared.'

The price of soymeal – critical for fattening livestock such as chickens and hogs – has moved above $405 a ton, a level only seen for a brief period in 1973 and during four weeks at the peak of last year’s crisis. The rise has pushed the price of ready-to-cook chicken in the US to the highest in a decade.

In rare public comments, Christopher Mahoney, a director at Glencore Grain, the secretive trading house based in Rotterdam, warned last week that supplies of some agricultural commodities such as corn and soy were “pretty tight”. Lewis Hagedorn, an agricultural commodities analysts at JPMorgan in New York, describes the situation as one of anxiety but not yet alarm. “We are approaching a level of concern with respect to inventories in some areas, although we are not presently in a crisis mode. We are not well prepared from a supply and demand balance sheet perspective to absorb any weather-related surprise.”

The immediate concern is soy, both because of its use as food but even more as livestock feed. Strong Chinese consumption, as the country’s diet moves from vegetables to meat, and the crop failure in Argentina, the world’s third largest exporter, have created extraordinary pressure on US supplies, sending inventories down to the lowest level in 40 years. Soybean prices on Tuesday hit $12.45½ a bushel, a fresh nine-month high. Soy is trading at the level of April 2008, after rising almost 60 per cent from its December’s low. Soya is, nonetheless, still below last year’s record of $16.5 a bushel.

Looking at the 2009-10 season, analysts fear a drop in cereals production, in corn and, to a lesser extent, in wheat, as farmers cut their planted acreage in response to low prices last autumn, higher cost for inputs such as fertilizer and pesticides, and difficulties securing finance in some countries. Production in countries such as Ukraine and Brazil is down because farmers did not have access to credit.

http://www.examiner.com/x-6012-State-of-the-World-Examiner~y2009m6d11-Concerns-mount-over-sharp-rise-in-food-costs

Global Food Crisis Looms

I hate to harp on this too much, but the word needs to get out somehow: the world may be facing a major food crisis soon. Reading the following article, I get the impression even I didn't realize how bad things are:

www.globalresearch.ca/index.php?context=viewArticle&code=DEC20090210&articleId=12252

Severe Drought in China affects wheat crop

There is an extremely severe drought affecting China right now, as you can see below, which will further exacerbate the upcoming food shortages. You may not realize, I sure didn't know, that China is the world's leading producer of wheat.




Northern and central China have had little precipitation since November. Many places have not had rainfall for more than 100 days. In the drought, more than 4.3 million residents face a shortage of drinking water, as do two million livestock, officials said The drought has hit at least 12 provinces, including the wheat-producing areas in Henan, Anhui and Shandong provinces. Chinese media says the total area affected has reached 1,370 million hectares (3,385 million acres).

Over the weekend, Chinese soldiers loaded rockets with cloud-seeding chemicals and fired them into the sky over drought-stricken areas in the effort to produce rain. Over the long term, China plans to divert water from its two longest rivers to drought-stricken areas. However, it is still going to be difficult to get water to mountainous areas and remote farmland. Many farms in China rely on rain, because irrigation systems are poor. Some places are getting 80 percent less rain than they normally do, according to the Flood Control and Drought Relief Office.


U.S. wheat futures extended gains on Friday, supported by a drought in China that has threatened the crop and prompted the government to declare an emergency in key wheat-growing areas of the country. "One of the reasons it made those gains yesterday and today is the announcement from China regarding the severity of drought which I think is going to tighten the global wheat balance sheet for 2009 and 2010."

China, the world's largest producer of wheat, has declared an emergency over a drought which could damage its important wheat crop, threatening further hardship for farmers amid slumping economic growth. The absence of rain or snow since November has affected 9.5 million hectares of farmland -- 37,000 square miles, or 43 percent of the winter wheat sources.

As the world's top consumer of wheat, China has bought Australian, British and U.S. grain in recent months because of lower international prices and the nation could tap the international market again.

http://www.forbes.com/feeds/reuters/2009/02/06/2009-02-06T071210Z_01_SP80611_RTRIDST_0_MARKETS-GRAINS-UPDATE-2.html
http://edition.cnn.com/2009/WORLD/asiapcf/02/10/china.drought/

Food Prices Rising

I am growing a Victory Garden because I am putting my money where my mouth is. Two months ago, I foresaw worldwide food shortages this summer, with a spike in prices here in America. The evidence continues to mount.


www.marketskeptics.com/2009/01/world-food-prices-are-rising-fast.html

Food Commodity Prices Rising

http://www.financialsense.com/editorials/schmidt/2009/0129.html

Agri-Food commodity prices are not falling. They have fallen, and are now rising. Reality is that the world continues to move over time into an era of global Agri-Food shortages. And since Agri-Food cannot be produced in a factory, neither governments nor charismatic leaders can change that situation.

The growth in the underlying demand for Agri-Food varies little with short-term economic cycles. Rather, longer term trends will dominate the future prices for Agri-Foods. Each year for the foreseeable future about 15 million people will move into the middle class in China. That will happen regardless of what happens to Chinese exports to the U.S. in the coming week. Of course, the actual number might be less in one year and more in other.

Over time the compounding effect of their demand for Agri-Food will place a considerable strain on the global Agri-Food balance. At times the question dealt with how China would feed itself. With the changing income demographics in the next decade, the question will change. How will the rest of the world afford to eat? Is your portfolio ready to ride this Agri-Food Super Cycle?

California drought may raise lettuce prices

Consumers may pay more for spring lettuce and summer melons in grocery stores across the country now that California farmers have started abandoning their fields in response to a crippling drought. California's sweeping Central Valley grows most of the country's fruits and vegetables in normal years, but this winter thousands of acres are turning to dust as the state hurtles into the worst drought in nearly two decades.

The giants of California agribusiness are the biggest economic engine in the valley, which produces every cantaloupe on store shelves in summer months, and the bulk of the nation's lettuce crop each spring and fall. This year, officials in Fresno County predict farmers will only grow about 6,000 acres of lettuce, roughly half the acreage devoted to greens in 2005. That alone could cause a slight bump in consumer prices, unless lettuce companies can make up for the shortage by growing in areas with an abundant water supply, or the cost of cooling, packaging and shipping the crop suddenly goes down, experts say. "Lettuce comes off the field and goes straight into the market, and if there's nothing coming off the field then the marketing chain goes dry, and prices go up," said Gary Lucier, an agricultural economist with the U.S. Department of Agriculture's Economic Research Service.

While the dry weather has exacerbated the problem, farmers' water woes are not all drought-related. Supplies for crops and cities also have been restricted by several court decisions cutting back allocations that flow through a freshwater estuary called the Sacramento-San Joaquin Delta, the main conduit that sends water to nearly two-thirds of Californians. Environmental groups and federal scientists say the delta's massive pumps are one of the factors pushing a native fish to the brink of extinction.

Last year, federal water deliveries were just 40 percent of the normal allocations, fallowing hundreds of thousands of acres and causing nearly $309 million in crop losses statewide. That prompted Gov. Arnold Schwarzenegger to issue a disaster declaration, ordering state water managers to expedite any requests to move water around the state, in part so high-value crops like wine grapes, almonds and pistachio trees would stand a chance of surviving. Federal reservoirs are now at their lowest level since 1992.

With such a grim outlook, many California farmers including Giacone are investing millions to drill down hundreds of feet in search of new water sources. Depending on how much it rains this winter, federal water supplies could be slashed down to nothing this year, forcing farmers to rely solely on brackish well water. But the U.S. Bureau of Reclamation won't make an official decision until late February, said Ron Milligan, the agency's Central Valley operations manager. The state Department of Water Resources, which also ships farmers water, has promised to deliver 15 percent of the normal allocations in October, but conditions are so dire that that's now in doubt, too.

"The consequences are expected to be pretty horrible in terms of farmers' revenue, but what's really disconcerting are the possible job losses," said Wendy Martin, who leads the agency's drought division. "Those communities that can least weather an economic downturn are going to be some of the places that are hit the hardest." Richard Howitt, a professor of agriculture economics at the University of California, Davis, estimates that $1.6 billion in agriculture-related wages, and as many as 60,000 jobs across the valley will be lost in the coming months due to dwindling water.

Analysts haven't yet provided any estimates of crop losses this year. But Bill Diedrich, an almond grower on the valley's parched western edge, said he's already worried he may lose some of his nut trees in the drought. "The real story here is food security," Diedrich told Milligan and other officials speaking at a conference in Reno, Nev. "It's an absolute emergency and anything to get water flowing quickly is needed."

In the meantime, the forecast appears to be worsening: Meteorologists are predicting a dry spring, and a new state survey shows the population of threatened fish is at its lowest point in 42 years, more imperiled than previously believed. "This has devastating effects not only for the guys out there in the fields with the weed whackers, but it affects the whole farming industry," said Thomas Nyberg, Fresno County's deputy agricultural commissioner. "I'm just praying for rain."

http://www.msnbc.msn.com/id/28843318/

Bartering for Food and Looming Shortages

A spike in food prices is looming, along with massive shortages throughout the world. Food security will become a mainstream concern in the months to come, and we will almost certainly see a repeat of the food riots again this summer. Prepare now!

From the Financial Times:

In a striking example of how the global financial crisis and high food prices have strained the finances of poor and middle-income nations, countries including Russia, Malaysia, Vietnam and Morocco say they have signed or are discussing inter-government and barter deals to import commodities from rice to vegetable oil.

The revival of these trade practices, used rarely in the last 20 years and usually by nations subject to international embargoes and the old communist bloc, is a result of the countries’ failure to secure trade financing as bank lending has dried up.

The countries have not disclosed the value of any deals, and some have refused even to confirm their existence. Officials estimated that they ranged from $5m for smaller contracts to more than $500m for the biggest.

Josette Sheeran, head of the United Nations’ World Food Programme, said senior government officials, including heads of state, had told the WFP they were facing “difficulties” obtaining credit to purchase food. “This could be a big problem,” she told the Financial Times....

The countries’ struggle to obtain credit to import food is boosting the price of domestic crops. Ms Sheeran said that prices of crops in some African countries were rising sharply even as international food commodities prices had fallen from last summer.

In addition, agricultural commodities prices have recovered in the past two months on the back of lower winter plantings in the US and Europe and a severe drought in Brazil and Argentina, two of the largest producers of food commodities.

Since December, wheat prices have risen 15 per cent, corn 17 per cent and soyabean 22 per cent. In contrast with other raw materials such as oil or aluminium which have plunged back to the levels of 2002-05, agricultural commodities are trading higher than they were 12 to 18 months ago.

During the medium term, the report states that "long-term resource scarcity trends, notably climate change, energy security and falling water availability", will put pressure on prices and production, together with "competition for land and higher demand resulting from increasing affluence and a growing population". The report recommends investment in farm production and international aid.

http://www.nakedcapitalism.com/2009/01/credit-crunch-leads-nations-to-barter.html
http://www.economicdiscourse.com/2009/01/nations-barter-for-food-amid-credit.html