Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17
Crude Oil Price Outlook 2017 - Video - 16th Mar 17
Dutch and French Electons - Winners are Losers and Left is Right - 16th Mar 17
The Straddle Trade Stock Market Brief - 16th Mar 17
Gold Up 1.8%, Silver Up 2.6% After Dovish Fed Signals Slow Interest Rate Rises - 16th Mar 17
Stocks Get Close To Record High Again As Fed Hikes Interest Rates - 16th Mar 17
Scotland Second Independence Referendum War - SNP Determined to Destroy the UK - 16th Mar 17
Here’s How Pharma Is Using AI Deep Learning To Cure Aging - 16th Mar 17
Stock Market Chaos in the Chicken Coop - 15th Mar 17
Gold and Silver Price Manipulation: The Biggest Financial Crime In History - 15th Mar 17
“Ryancare” Dead on Arrival: Can We Please Now Try Single Payer? - 15th Mar 17
Fanaticism, Stock Market Crash 2017 or Continuation of Bull Market - 15th Mar 17
Stock Market Most Overvalued On Record — Worse Than 1929? - 15th Mar 17
Desperate Saudi Arabia Turns to Asia for Investment - 15th Mar 17
Startups Will Define the Future of US Employment - 15th Mar 17
Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold? - 15th Mar 17
SNP Declare Scotland to Commit Economic Suicide Early 2019, 2nd Independence Referendum - 14th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Experts: Global Food Shortages Could ‘Continue for Decades'

Commodities / Agricultural Commodities Feb 22, 2008 - 01:36 PM GMT

By: Joseph_Dancy

Commodities

Best Financial Markets Analysis ArticleGlobal inventories of grains are nearing historic lows, while twenty percent of the U.S. corn crop this coming year will be used for ethanol production. Meanwhile wheat, rice and soybean prices have reached all-time highs and corn prices have jumped to a 12-year high.

Demand for grain continues to increase adding upward pressure on the price of agricultural products. We expect this trend to continue. Recent developments in the sector, found in various publications, include:


  • For decades, the industrialized world enjoyed the luxury of producing far more milk, butter and wheat than its citizens could consume. The surplus was exported or was destroyed. Some experts expect this luxury has now come to an end. Europe 's mountains of butter have been depleted, its grain silos emptied and its lakes of milk drained. "The era of overproduction is behind us," says Stephane Delodder, an agricultural specialist with Rabobank in the Dutch city of Utrecht .

For the first time, we are seeing the emergence of a global agricultural market driven by the growing demand for grains and a scarcity of supply. Wheat inventories, for example, have reached a 30-year low. In one year inventories in the European Union have plummeted from 14 million to one million tons. The fact is that arable land cannot be increased at will. Over the past three decades, the amount of arable land worldwide has stagnated at about 1.5 billion hectares (3.7 billion acres).

While new agricultural lands are being added in Russia and South America , more and more land is lost to residential and industrial development in Asia and Europe . In China , eight million hectares (20 million acres) of land under cultivation have vanished within a decade. For comparison, just under 12 million hectares (30 million acres) of land are currently used for agriculture in Germany . These spatial limitations would be tolerable if the world's population wasn't growing at such a breathtaking pace.

How long will the agricultural boom last? Michael Schmitz, an agricultural economist and professor, used databases to forecast how far trends would last when global conditions change like they have recently. The professor says that the current shortages and price hikes are not a phenomenon that will end in a few months -- or even in a few years. Schmitz predicts: "This could continue for two or three decades." (Spiegel Online)

  • The world faces a serious food crunch "that is not getting nearly enough attention from global leaders" the head of the world's biggest fertilizer producer warned last month. Global grain reserves are "precarious" at only 1.7 months of consumption according to Bill Doyle, CEO of PotashCorp. Profiting from world agricultural demand, he noted "we believe that in many ways we are just getting started and the best is yet to come." As hundreds of millions more people in China , India and elsewhere attain higher-protein diets, Doyle expects global production of grains and soybeans will fall further behind demand.
  • World food security, as measured by grain inventories, has slumped to its lowest since records began in 1960. Just 50 days of grain inventories are available, compared with 115 days in 2000. Julian Cribb, a professor from Sydney 's University of Technology , predicted the oil and credit crises rattling world economies will be “nothing compared to the threat from emerging global food shortages.” (Courier-Mail)

•  The U.S.D.A. released a report last month that highlighted; (1) how few additional acres have been planted globally in the last decade, even as world population and economic growth continues forward, and (2) how rapidly the global grain inventories have declined. A summary of the report is set out below. (Table from U.S.D.A. website)

  • Scarcity of water and arable land means that the boom in food prices could last longer than most expect, warned a study issued last month. The report, published by the UK-based consultants Bidwells Agribusiness, said the agricultural boom – until now fuelled by rising demand from emerging countries and the biofuels industry - would be exacerbated by supply constraints. Water and land scarcity, together with slow improvement in agronomics, will be key factors limiting food production. (Financial Times)
  • From 1961 to 1970, the price of crude oil was static at about $1.80 per barrel. Based on the quality of wheat produced in Saskatchewan during that 10-year period, average price received by farmers was $1.58 a bushel.

A barrel of oil and a bushel of wheat were about the same value back in the 1960's. Today wheat might surpass $8 a bushel for this crop year, but a barrel of oil sells for around $90. A bushel of wheat has gone from being on par with a barrel of oil to being worth less than a tenth as much. (Star Phoenix ( Canada ))

  • La Nina conditions now pose a significant risk to U.S. corn production in 2008, says Iowa State University meteorologist Elwynn Taylor. By late December those La Nina conditions had met specific guidelines that point to the possibility of drought in 2008.

"At this time the combined risk is a 68% chance of a below trend U.S. corn yield," says Taylor . This risk is increased by scant subsoil moisture, the 19-year drought cycle, and existence of drought in the area of South Carolina . (Farm Futures)

  • Throughout history people have eaten more meat and protein as they have become richer. This is called the nutrition transition and it's now happening, very quickly, in the two most populous nations on the planet – India and China .

Hundreds of millions more people are now rich enough to eat meat compared with 10 years ago. Tim Lang, professor of food policy at London 's City University , notes 'I've been expecting this for two years. The food system is entering a period of very significant restructuring, the first since the years after the Second World War. We may look back at the second half of the last century as an era of cheap food. It'll be like the Hundred Years' War, as we were taught it in school: a seminal moment in human history that's gone and will not return.'

Food is - for the rich world, at least - astonishingly cheap. The average British household spends 13 per cent of its income on food – fifty years ago that figure would have been 30 per cent. (Guardian Unlimited)

  • Although we are coming off a record corn harvest, if elevated price levels do not subside the impact would be staggering according to some experts. For example, current grain prices imply that land rents in Iowa and the rest of the Corn Belt should increase by a factor of about 2.8.

As land rents go, so too do land prices. Iowa State University 's annual land price survey showed that in 2005 the average acre of farmland in Iowa was valued at $2,914. Multiplying the 2005 land value by 2.8 suggests average land values in excess of $8,000 per acre. (Cattle Network)

  • Deutsche Bank last month predicted 2008 will be another year of strong commodity price gains, most notably in the agricultural and precious metal sectors. Michael Lewis, Global Head of Commodities Research at Deutsche Bank, found that rallies in the agricultural sector are “still in their infancy.” Deutsche Bank expects new price highs to be achieved across the sector, with corn, cotton and soybeans especially attractive. (Wall Street Journal)
  • Last month 10,000 Indonesians demonstrated outside the presidential palace in Jakarta after soybean prices soared more than 50 per cent. While the social unrest has not yet spread to other Asian nations, consumer frustrations are mounting. World soybean prices climbed to a record last month, partly because farmers in the US and Asia have instead been growing crops to supply the biofuel industry. Bad harvests in Latin America and rising Chinese demand have added to the price pressure. (Financial Times)
  • The pressures in global food markets have grown so intense that, for the first time in its history, the United Nation's World Food Program is finding it hard to procure supplies of essential commodities. In particular, countries in the emerging world were now placing so many export controls on items such as wheat to conserve them for their own populations that they have refused to release supplies to the U.N. "We have never seen this before” according to senior officials at the World Economic Forum in Davos. (Financial Times)

•  Rising Costs Felt at the World's Dinner Tables

A simple calculation points out biofuel's less-than-stellar potential. To fill the roughly 100-liter (26-gallon) tank of an SUV, an ethanol producer has to process about a quarter of a ton of wheat.

This is enough wheat for a baker to bake about 460 kilograms of bread, which has a total nutritional value of about a million kilocalories -- enough to feed one person for a year. (Spiegel Online, New York Times)

Charles Munger and Warren Buffett both note that a good business environment – one where a company can earn reasonable margins and expand – is one of the main elements that has been present in their best investments.

We think the agricultural and energy sectors present the best business environment investors will find. In the end these long term positive trends will serve our investors well.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter

http://www.lsgifund.com

Email: jdancy@REMOVEsmu.edu

Copyright © 2008 Joseph Dancy - All Rights Reserved

Joseph R. Dancy, is manager of the LSGI Technology Venture Fund LP, a private mutual fund for SEC accredited investors formed to focus on the most inefficient part of the equity market. The goal of the LSGI Fund is to utilize applied financial theory to substantially outperform all the major market indexes over time.

He is a Trustee on the Michigan Tech Foundation, and is on the Finance Committee which oversees the management of that institutions endowment funds. He is also employed as an Adjunct Professor of Law by Southern Methodist University School of Law in Dallas, Texas, teaching Oil & Gas Law, Oil & Gas Environmental Law, and Environmental Law, and coaches ice hockey in the Junior Dallas Stars organization.

He has a B.S. in Metallurgical Engineering from Michigan Technological University, a MBA from the University of Michigan, and a J.D. from Oklahoma City University School of Law. Oklahoma City University named him and his wife as Distinguished Alumni.

Joseph Dancy Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

pat
22 Feb 08, 23:45
food shortage

remember the starving children in China?


Scheel Shenoy
13 May 08, 01:27
FOOD SHORTAGE

Are we going to be engaged in discussions or is there any inclination to reverse the trend of food shortages?

Are we ready for a radical change?

Like demolishing concrete structures if need be and plant crops? Or are we going to be after bottom lines which translated into reality mean only worthless paper if resources are not available?


Mr Popodopolous
19 Jan 09, 13:53
We should have kept the surpluses

Scary stuff!

We in Europe should have kept those surpluses, destroying them what a ridiculous move!


Post Comment

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

Catching a Falling Financial Knife