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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Global Food Crisis Investing Special

Commodities / Food Crisis Apr 26, 2008 - 07:06 AM GMT

By: Nadeem_Walayat

Commodities Best Financial Markets Analysis ArticleThe food riots across the world illustrate the degree to which the world is seeing a shift from cheap food to the early stages of a mega trend in the agricultural sectors that is set to continue for many years. This impact is not just limited to the developing world but people in the developed world have seen their food costs soar by as much as 50% over the last 12months.


The primary driving forces for the agricultural commodities boom are -

* Bio-Fuels - As crude oil hits another all time high of $119, the world is seeing a dash towards bio-fuels such as ethanol, this shift in allocation of food production towards fuel is one of the primary forces for the surge in food prices and given that the trend in crude oil is unlikely to revert in the face of Peak Oil, the shift in production towards bio-fuels is expected to continue for many years if not decades.

* China and Indian Demand - The economic boom in China and India is resulting in increase in food consumption as the 2 billion plus consumers demand a more varied diet more in line with the developed world.

* Return of the Food Mountains - The 1980's were renowned for huge food mountains across Europe, as the European Community bought up excess supply so as to stop food prices from collapsing in the face of over production by the heavily over subsidised food industry. Now in the wake of food riots and shortages, many countries, including the key exporting countries are seeking to build up their own food mountains so as to counter the likelihood of short-term shortages. This has the effect of driving prices higher as supply is being taken out of the market which makes less available on the world market.

* Disruption of food production due to global warming. Global wheat stocks have fallen to 20 year lows as the trend towards global warming continues, so will the trend towards more expensive food production costs as the weather patterns change across the world resulting in the increase in poor harvests. Global warming means most countries will be losers such as the US, and Asian countries, but Russia and Canada are expected to reap a bumper harvest as more land is made feasible for agriculture use.

* Rising Inflation - The US subprime sparked credit crisis has resulted in the US Fed's abandonment of the Dollar towards attempts at averting a deep recession. The strategies deployed of cutting interest rates and increasing the money supply are highly inflationary. Other central banks across the world are following the US Fed's example by adopting similar inflationary policies.

* Investment & Speculation - Increasingly investment funds are being re-allocated towards the Foods sector in recognition of the expected out performance against weak sectors such as the Financial's.

The easiest way for investors to gain a long-term exposure to the agricultural commodities boom is through the wide range of available Agri-Foods ETF's. For the rest of this report please subscribe to our FREE Weekly News Letter

By Nadeem Walayat

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Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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