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
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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