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 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
UK Coronavirus Infections Trend Trajectory Worse than Italy Government PANICs! Sterling Collapses! - 19th Mar 20
Coronavirus Market Crisis - Nowhere to Hide! - 19th Mar 20
Coronavirus Most Likely GDP Economic Outcome for Q1 and Q2 2020 - 19th Mar 20
How COVID-19 Leads to 2008-Style Bank Crisis - 19th Mar 20
Coronavirus Impact on Global Economic GDP Numbers - 19th Mar 20
Bticoin Crash Big Channel Review - 19th Mar 20
Gold is Doing Its Job…Silver Will Come Back as a Safe-Haven Asset - 19th Mar 20
The Chartology of Coronavirus Deflationary Event - 18th Mar 20
Fed Slashes Rates to Zero and Introduces QE in Response to COVID-19. Will Gold Rally Now? - 18th Mar 20
Coronavirus - Nothing to Fear but Fear Itself - 18th Mar 20
The Stocks Bear Market Is Upon Us... Or Not - 18th Mar 20
US and UK Coronavirus Containment Incompetence Resulting Catastrophic Trend Trajectories - 17th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Introduction to Peak Food

Commodities / Agricultural Commodities May 26, 2015 - 03:04 PM GMT

By: Ned_W_Schmidt

Commodities

Your high-tech toy watch won't buy you an egg. To date, the U.S. is on course to destroy 40,721,073 birds, mainly laying hens. Yes, elves at USDA do like precision in their numbers. Those birds are the casualty of pathogenic avian influenza outbreak. Despite the state of today's technology, eggs still come from chickens not from factories or 3-D printers. And eggs are not the only Agri- Commodity that has defied both technology and conventional wisdom. By the way, U.S. egg prices are up 120% or more in the past month.


Schmidt Agri-Food Price Index

In above chart is plotted our Agri-Food Price Index, a measure of the price movement on 17 Agri-Commodities. Interesting point of the chart is what is not shown. On average, Agri-Commodity prices did not collapse as has been the expectation by much of the investment world. Rather, the index actually made a new high last year before correcting. In recent months the U.S. dollar mania has depressed any dollar denominated commodity index. With that nonsense now out of the way, Agri-Commodity prices, again on average, have advanced near 6.5% in the past month.

Why have Agri-Commodity prices shown such resilience? Why is a bushel of corn in China worth near $10 when it sells for less than $4 in the Midwestern U.S.? Whyis beef in the U.S. selling within one percent of an all time high? Why is China now importing 120 million tons of Agri-Grains on a path to import 200 million tons?(COFCO via Reuters, 21 April)

Answer to all those questions, and many others, has two parts. One which we are interested at this time relates to the supply side, and the implications of "Peak Food". That term was actually created by Tom Bawden in an article titled "Have we reached 'peak food'? Shortages loom as global production rates slow" which appeared in The Independent(UK), 28 January 2015. We note Bawden's articleand contribution as he alerted readers to an article "Synchronized peak-rate years of global resources use" by Seppelt, et al which appeared in Journal of Ecology and Society (December,2014).

Peak food was actually first discussed by Thomas Malthus in An Essay on the Principle of Population published in 1798. He contended that a clash between peak food production and population growth England, an island nation, would cause both higher prices and some parts of the population to be priced out of food markets. Despite the general lack of understanding of his work and history of Agri-Food, Malthus has been heavily criticized by uninformed economists. In middle of 1800s England was forced to become a net importer of food to feed the people, and has been ever since. Apparently Malthus was right, and the economists were wrong. Any surprise there?

Now, some 216 years later, we have some data and analysis that support his hypotheses. With the publication of the Seppelt, R., et al article, limitations on productive capability of the global Agri- Food system have been quantified for the first time. Research by Seppelt, et al adds some confirmation of what has generally been noted by a number of researchers and has been part of our central thesis on Agri-Food. Limitations do exist on ability of the world to produce food. Second, as demand for food expands prices for that food will rise over time, and at some times in dramatic fashion. While Malthus talked of population, in modern world disposable income and especially growth of disposable income in developing world is the specific fuel for Agri-Food demand.

Malthus was observing the relationship between food availability and population in England. While we tend to think of England as a nation, generally not thought about is that England is also an island. At any point in time the quantity of food that can be produced on an island is fixed. Over time, innovations in agricultural science can increase amount of food produced up to the limits of that fixed quantity of land. However, the ability of the land itself to produce food does not naturally expand, and is ultimately limited by natural constraints. If the population of the island expands, amount of indigenous food production per capita declines. Malthus observed that as that happened the price of food would become unaffordable for some segments of the population.

Bio-technology can create over time innovations in seeds, planting, and crop nutrition that do lead to "one time" gains in production on a fixed base of land. While these gains are "one time", the adoption of innovations happens over time. As an innovation is adopted over time by farmers, crop yields do give the appearance of increasing. If one looks at the data for crop yields, production per acre, the impression given is that some kind of trend line growth occurs. It does not.

We have been thus far trying to "set the stage" for this discussion of Peak Food. We started with Malthus causehe was the first to observe and report on the relationship between food production and population. He was able to do so because he could observe a far simpler system, an island called England, than exists today. However, remember that Earth is simply an "island" in space.

What did the research of Seppelt, et al conclude? The researchers looked at 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.

This research focused on the rate of change for production. If, for example, the world produced 1 billion tons of a grain last year and this year produces 1.1 billion tons the rate of change is positive 10%. If the following year the world produces 1.2 billion tons, the rate of change is positive 9.1%. Production is indeed increasing, but the rate of increase has peaked. The year in which the rate of change peaks is the Peak Year. 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. More on this next time. But, one final question: Is knowing that world is in the era of Peak Food of importance to investors? Apparently the answer is yes, as Agri-Equities are at a new high.

Agri-Food Stocks versus S&P500

References:

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

Malyhus, T. (1798). An Essay on the Principle of Population. Free on 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