Urgent Food Supply Update
Steve Shenk
Everyone but the Farmers Benefit from Global Food Shortage
The Sovereign Society Offshore - A LetterApril 8, 2008
By Mike Burnick, Senior Editor & Global Markets Analyst
Right now, countries around the world are facing food shortages. There's just not enough to go around, when prices of corn, soybeans, rice and other basic staples are soaring in price.
Agricultural commodities have been stellar performers in recent months, while commodities soared as a whole. However, increased volatility has crept into the grain markets here too. But there's good reason to believe that any downside in soft commodities will be limited by the fact that we are in the midst of a global food crisis.
Yesterday, rice prices jumped to fresh record highs, and corn traded near its highest level ever. Soybeans and wheat also advanced strongly. Bloomberg reports that "Indonesia, the world's third-largest rice producer, may join China, India, Vietnam and Egypt in curbing exports to secure domestic supplies."
What we're seeing now is nothing short of a full-scale global power struggle to secure valuable food resources which are growing scarce. Rice for example is the staple food for about three billion of the world's people, mostly in poorer, developing nations. Since 2005, the prices of food staples (including rice) have soared 80%.
This is triggering sharp inflation spikes throughout the developing world - which in turn has sparked troubling social unrest. Consumer prices in China rose 8.7% in February to an 11-year high. Inflation in India is at a 13-month peak.
The United Nations is warning that "36 countries, including China, face food emergencies this year, as stockpiles of grains such as rice drop to a 26-year low." The World Bank points to social unrest in 33 countries around the world because of "the acute hike in food and energy prices."
Of course population growth, along with rising living standards around the world, is one of the key "demand factors" most often cited for soaring food prices. Another factor to keep an eye on is soaring input costs - which is keeping upward pressure on prices from the supply side too.
U.S. farmers, for instance, are paying much higher prices for diesel fuel to power their combines, nitrogen fertilizers to nurture their crops, and livestock feed. In fact, while commodity prices received by farmers jumped (some) year over year in March - the costs incurred by farmers to grow grains and livestock soared (tremendously) over the same period.
Note: Huge profits are made by investors and agri-corps riding the worldwide wave of panic from the global famine.
These higher "input costs" will inevitably get passed along over the next few months in the form of...you guessed it: Even higher agricultural commodity prices.