Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Agricultural Commodities Peak Food

Commodities / Food Crisis Aug 11, 2015 - 08:33 AM GMT

By: Ned_W_Schmidt

Commodities

Last we visited on Agri-Foods the concept of Peak Food was introduced. That shift in the fundamentals of global food production was identified as adding support to Agri-Commodity prices. For despite the negative sentiment on commodities and "China is collapsing" group think, Agri- Commodity prices continue to show strong resilience, as shown in the chart below right. As prices of Agri-Commodities do not move in unison, the Agri-Food Price Index has been essentially unchanged for about three years. For example, recently hog prices have been weak while U.S. cash corn hit a new 52-week high.


In recent times the "China is collapsing" view has become a popular theme. Despite that thinking, Agri-Commodity prices are down less than 3%, on average, in the past four weeks. After taking into consideration seasonal factors, the price response to the popular views on China's economy has been tiny. Reason for that is Chinese imports of grains have been exceptionally strong, up more than 60% from a year ago through end of June.

Peak Food was the name given to the results of research by Seppelt, et al(2014) published as "Synchronized peak-rate years of global resources use" in Journal of Ecology and Society. That research was made popular in "Have we reached 'peak food'? Shortages loom as global production rates slow" (Bawden,2015). For that reason we credit Bawden with the term Peak Food.

In their research Seppelt, et al studied the long-term production records of 27 renewable and non renewable resources. Our interest is primarily with the Agri-Foods they studied, which are classified as renewable resources. 17 Agri-Commodities were studied, from cotton to corn to rice and soybeans. Included were the bulk of the Agri-Commodities that feed the world.

Focus of that research was on the year-to-year change of production of these commodities. What they discovered was that the annual gain, or increase, of production for most of those Agri-Commodities had peaked. Of the 17 Agri-Commodities studied, 16 had Peak Years in the time frame 1985-2009. Production of those Agri-Commodities is rising, but the rate of increase is slowing. That reality has strong implications for future Agri-Commodity prices as demand continues to rise.

Let us explore for a minute the implications of Peak Food from Seppelt, et al. Focus was on the year-to-year production change for the commodities. Below is a stylized chart, meaning that it paints the picture rather than portrays specific data, of the trend in annual global production change, green bars. This research concluded that the most likely year of maximum production gain for corn, as one example, occurred in 1985. Up to that year the annual gains in production were rising, and since then have generally been smaller each year.

Annual Change of Corn Production

Red arrow approximates what the total global production curve would look like given the shape of the green bars. Total corn production continues to rise, but at a much slower rate. That happens as each year's potential increase of production becomes smaller, and we might add more expensive. When total production is as the red curve depicts, the sensitivity of prices to an increase in demand is higher. Price of corn should rise over time by a greater percentage than does annual production.

This analysis says nothing about what can happen in any one country or region in a particular year. For example, North American corn harvest was especially good in 2013 and 2014. That was due to the weather rather than a change in the longer term picture. As evidence of that we note that U.S. cash corn price in the U.S. is less than $4/bushel while at the same the dollar equivalent price in China is more than $9/bushel. Further, note that U.S. cash corn recently made a new 52-week high.

In the above discussion we implied a precision in the estimate for corn's peak year with which we should be careful. Based on the research, 1985 is the most likely peak year. In statistical terms that means it is the best estimate, and that the probability of a later year or an earlier year is 50%.

In table below we provide the estimates of peak years from Seppelt, et al for the major Agri- Commodities. Most likely peak year for each is in middle column. Final column is what might be described as potentially the latest possible year for the peak. Probability that Peak Year is later than the last column is 2.5%. For our purposes this means that we can have considerable confidence, 97.5%,that the Peak Year for corn production was before 2007, third column, and most likely between 1985 and 2007.

So, what does this all mean? First, each year in the future increasing global production of food will become more difficult. Second, rising global demand means that prices are going higher. Third, onlywayannual production gains can be increased is byrasing prices to perhaps unacceptable levels. China has sustained corn production only through high prices, above $9/bushel and more than twice those of the U.S. Fourth, how will world feed India? Indian food consumption has the potential to "double" in the next decade. Fifth, Agri-Equities, shares of those companies involved in Agri- Food production, should benefit in a significant manner from this situation.

References:

Bawden, T. (28 January 2015).Have we reached 'peak food'? Shortages loom as global production rates slow. The Independent.

Malthus, T. (1798). An Essay on the Principle of Population. Amazon Kindle.

Seppelt, R., et al. (December,2014). Synchronized peak-rate years of global resources use. Journal of Ecology and Society.

Ned W. Schmidt,CFA is publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food Super Cycle, and The Value View Gold Report, a monthly analysis of the true alternative currency. To contract Ned or to learn more, use either of these links: www.agrifoodvalueview.com or www.valueviewgoldreport.com

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