Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Iceland Volcano Ash Could Hit Global Grain Production

Commodities / Agricultural Commodities Apr 27, 2010 - 01:29 AM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleWhat a disappointment! We had high hopes for the Icelandic volcano. Not since preparations for the Millennium Bug has our mood been so upbeat. A real shot at a good calamity seemed to be possible. Then, it dwindled to nothing more than hot flatulence rather than the real thing. But, the Icelandic volcano is still there, trying to make things right. Well, it is only day 13 of the volcano, and you know what they said about the little train.


Much of what has been written on the volcano misses the point. Some travelers stranded for a few days do not sum to a meaningful economic event. Neither is the threat of mountains of ash reigning down on Europe the concern. Whatever the size of the volcano, the accumulation of particles in the air is potentially the story. Numerous climatologists have now been quoted as saying that the volcano will not change the climate. SUVs and cow flatulence will, but volcanos will not. No, the real story is whether or not the weather for this coming crop season has been altered from that which would have existed without the volcano ash interfering with the light of the Sun reaching plants.

Whatever the accumulation of ash in the skies might be, the level of sun reaching the plants in the affected area will be less than would have been the case without the volcano. Part of the story also is fragile nature of the supply and demand balance in global Agri-Foods. Our first chart above is of the global wheat savings rate. Whatever part of production, or income, not consumed is by definition what is saved. If the value plotted in the above chart is negative, the world is consuming more wheat than it is producing.

The world got lucky in 2009, and may again in do so in 2010. Rose-colored forecast from the USDA puts the global wheat savings rate for the coming year at only slightly more than 4%. That forecast suggests little, or no, room for error. Any negative production event in world wheat, be it from volcano ash accumulation in the atmosphere or just bad luck, could force the world to turn to that which is in storage.

Some forecasters would have us believe the size of the world’s wheat reserve is immense. Further, that reserves of such size guarantee no shortages. But, are the world’s reserves really that large? In absolute terms the size is large, but one must also consider the denominator.

WHEAT: MONTHS OF CONSUMPTION IN STORAGE

MEASURE MONTHS OF CONSUMPTION
WORLD, UNADJUSTED 3.6
CHINA 7.0
WORLD, WITHOUT CHINA 3.0

As the above table indicates, when the denominator is properly considered, the world is not awash in wheat. If the large reserves of China are excluded, the world has only 3 months of wheat consumption in reserve. With only 3 months of wheat consumption in storage, any shock, however small and deemed insignificant, could unmask the inadequacies of the global Agri-Food system. At this time price is the only consideration. At some future time, availability could become more important than price.

Our second chart, above, portrays what can happen with Agri-Food prices in a very short period of time. That graph is of the USDA index of prices for hanging and boxed beef. Since the bottom in November, beef prices have risen about 25%. Annualized, that is an impressive rate of increase. The base in that graph is about 9-10 months. Given the size of that base and time required to rebuild herds, the top in beef prices will not come with a 2010 handle. Please note that calves are not produced in factories.

How can prices move such as pictured in the above graph? Globally, the Agri-Food industry is operating in the price inelastic component of the long run Agri-Food supply curve. That means that percentage price moves are far greater than percentage change in demand. Or, a small change in demand results in a far greater move in prices. Little demand can push prices up dramatically. Few, if anybody, predicted a year ago the volcano eruption. Even fewer have the ability to determine its impact on wheat prices a year from now given the existing price inelasticity of Agri-Food.

Agri-Food prices, as we have reported many times in these articles, have risen at a rate far faster than the return produced by equity markets. Even with Gold, your portfolio may not be adequate to feed your family in the coming years. To help investors understand the returns generated by Agri-Food commodities, we recently released our quarterly report on the topic, Agri-Food Commodities: An Investment Alternative. You may read that report at this link: http://www.agrifoodvalueview.com/files/Agri-Food_Commodites_An_Investment_Alternative_2010_April.pdf

By Ned W Schmidt CFA, CEBS

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View , a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To receive the most recent issue of this publication, use this link: http://home.att.net/~nwschmidt/Order_AgriValue.html

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules