Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Is the US Yield Curve Inversion Broken? - 3rd July 22
New Signs Economic Turmoil Will Prompt Fed to Lose Its Nerve - 3rd July 22
Stagflation With Powell Could Make Gold Price Happy - 3rd July 22
UK Housing Market Analysis, Trend Forecast 2022 to 2025 - Part 2 - 30th June 22
Stock Market Turning the Screws - 30th June 22
How to Ignore Stocks (and why you should) - 30th June 22
Top Tips For Getting The Correct Insurance Option For Your Needs - 30th June 22
Central Banks Plan To Buy More Gold In 2022 - 30th June 22
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
GOLD STOCKS ARE WORSE THAN GOLD - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Food, a Global Crisis – How bad is it going to get?

Commodities / Food Crisis May 31, 2022 - 01:58 PM GMT

By: Richard_Mills

Commodities

A comparison of this year’s grocery bills to last year’s yields a simple yet terrifying conclusion: food prices are rising at a rate beyond anyone’s imagination.

The Food and Agriculture Organization’s (FAO) food price index, which tracks the price movements of the most commonly traded and consumed food crops, recently reached its highest on record.

Most point to the exorbitant prices, like with many other commodities (i.e. oil), to the ongoing war in Europe, which has caused major disruptions to the global supply chain. Indeed, Russia’s invasion of Ukraine earlier this year triggered a series of events that blocked off some of the region’s supply routes, taking away a significant portion of the world’s food supply. The result? every category of food we consume — wheat, meat, dairy products, etc. — got more expensive.

FAO economists estimate that Russia and Ukraine together provided around 30% of the global wheat supply and 20% of maize exports over the past three years, representing a significant chunk of the global food supply. It’s been estimated that nearly 25 million tonnes of grain alone have been eliminated from the supply chain since Russia’s blockade of Ukrainian ports.


Also contributing to the higher food prices is the scarcity of fertilizers, the chemicals that farmers rely on to keep their corn, soy, rice and wheat yields high.

Western sanctions against Russia and neighboring Belarus essentially placed a sizable share of the world’s available fertilizer off-limits. Together, Russia and Belarus accounted for more than 40% of global exports of potash last year, one of three critical nutrients used to boost crop yields, according to Morgan Stanley.

With reduced shipments around the globe, prices of this key farming input eventually soared to record highs, surpassing levels last seen during the food and energy crisis in 2008. According to British commodity consultancy CRU, prices for raw materials that constitute the fertilizer market — ammonia, nitrogen, nitrates, phosphates, potash and sulphates — are up 30% since the turn of the year.

Commenting on the global shortage of fertilizers, World Farmers’ Organization President Theo de Jager recently said: “Prices are more or less 78% higher than average in 2021, and this is cracking up the production side of agriculture. In many regions, farmers simply can’t afford to bring fertilizers to the farm, or even if they could, the fertilizers are not available to them.”

“And it’s not just fertilizers, but agrichemicals and fuel as well. This is a global crisis and it requires a global response,” de Jager added.

Back in March, FAO chief economist Maximo Torero said “the fertilizer crisis is in some respects more worrying because it could inhibit food production in the rest of the world that could help take up the slack.”

Stalemate in Europe

This global food crisis is only going to worsen as long as Russia and the Western powers that imposed sanctions against it continue to lock horns.

Meanwhile, the so-called “military operation” in Ukraine has only escalated in recent weeks, reaching the dangerous stage of an unstable and violent stalemate.

“Combined with the reality that Putin faces a mismatch between his ambitions and Russia’s current conventional military capabilities … the next few months could see us moving along a more unpredictable and potentially escalatory trajectory,” the Director of National Intelligence said during a recent meeting of top US officials.

With little hope for a quick resolution, the market chaos is likely to persist, creating even bigger and longer food shortages in parts of the world. Just how dire the situation is moving forward? For context, Russia is forecasted to export a world-leading 39 million tonnes of wheat next year, according to the USDA’s latest report.

With the events that have unfolded, the World Bank projects that global food prices could rise 22.9% this year, and a hunger crisis affecting the world’s most vulnerable countries is well underway.

More Hungry People

The United Nations and other international organizations have warned that more costly food could upend the global economy, creating widespread hunger in vulnerable countries such as those in Africa and the Middle East.

Even before the Russian invasion, fertilizer costs worldwide were already soaring as record energy prices forced makers of the nutrient to cut down production. In turn, global food production fell well below its target, and food prices, which have been rising precipitously over the course of the Covid-19 pandemic, got more expensive and, in some places, unaffordable.

In its latest report highlighting the severity of the crisis, the UN estimates that in the past year, global food prices have risen by almost one-third, fertilizer by more than half and oil prices by almost two-thirds.

The UN report also revealed that the number of severely food-insecure people has doubled over the past two years, from 135 million pre-pandemic to 276 million today. More than half a million people are now experiencing famine conditions, according to UN figures, representing an increase of more than 500% since 2016.

In Ethiopia, Somalia and Kenya alone, the number of people facing extreme hunger has more than doubled since last year, the UN noted.

Frightful Weather

Compounding the global food crisis is the continued threat of extreme weather, which, according to the World Food Programme, contributed to most of the world’s food crises two years ago and was the primary cause of acute food insecurity in 15 countries.

Higher temperatures, water scarcity, droughts, floods, and greater CO2 concentrations in the atmosphere all have negative impacts on the yield of staple crops.

The FAO estimates that 80% of the causes behind an unpredictable harvest for cereal crops in areas like Africa’s Sahel come down to climate variability. In other places like Bangladesh and Vietnam, rising sea levels are jeopardizing the world’s rice supply by flooding the farmlands with saltwater.

Since the 1990s, the number of weather-related disasters around the world has doubled, a pattern that greatly increased the risk of food insecurity and food prices. Sadly, this trend is unlikely to disappear anytime soon.

Just recently, India announced a ban on its wheat exports amid an intense heat wave that saw temperatures hitting a record 49.2 degrees Celsius. India is the world’s second-largest wheat producer after China.

Before the Ukraine war, the dry weather in Latin America took its grain inventory to levels that would keep grain prices high until 2023, Morgan Stanley analysts recently wrote in a report.

Western economies like the US are also not spared from extreme weather events. Across the Midwest, one of the world’s most fruitful breadbaskets, farmers are well behind their usual planting pace due to rain and cold weather. The US Department of Agriculture recently found that only 3.7 days of the week were suitable for field work in the state of Minnesota.

‘Messy’ Migration Wave

Rather than choosing to starve or hoping for a miracle, those deprived of an adequate food supply could eventually seek “greener pastures”. The food shortage crisis is expected to trigger a major migration wave into Europe from Africa and the Middle East, according to the EU’s migration chief.

Speaking with Bloomberg at the World Economic Forum in Davos, Switzerland, European Commission Vice President Margaritis Schinas said a hunger-driven migration is “not going to be so manageable, it’s going to be more messy.”

Echoing this sentiment at the Davos event was David Beasley, the head of the United Nations’ World Food Program, who said the lack of access to food may spur millions of people to migrate.

Every 1% increase in hunger results in a 2% increase in migration, he said, noting that 49 million people were “knocking on famine’s door” in 43 countries.

“Those are the 43 countries we’ve got to be extremely concerned about that will result in destabilization and mass migration if we don’t get ahead of this,” he added.

Conclusion

By now, most around the world have accepted the fact that a food crisis is upon us, and while we don’t want to be the bearer of bad news, things will only start to go downhill from here.

Food insecurity has always been a big issue in developing nations, but the 2022 food crisis has spread fear into the biggest economies.

US food costs were up 9.4% during the month of April, with prices for things like meats, poultry, fish and eggs up 14.3% from the previous year, Labor Department data showed. In China, prices of fresh vegetables are 24% higher than a year ago, according to data released from the country’s National Bureau of Statistics.

Then there’s the uncertainty of the Russia-Ukraine situation, which is basically taking away not only a huge chunk of the world’s food production, but also leaving farmers around the world short of fertilizers to grow their crops.

As the CEO of CF Industries, a leading global manufacturer of fertilizers, recently said: “We are absolutely facing a problem of catastrophic proportions here.”

Richard (Rick) Mills
aheadoftheherd.com
subscribe to my free newsletter

Legal Notice / Disclaimer

Ahead of the Herd newsletter, aheadoftheherd.com, hereafter known as AOTH.

Please read the entire Disclaimer carefully before you use this website or read the newsletter. If you do not agree to all the AOTH/Richard Mills Disclaimer, do not access/read this website/newsletter/article, or any of its pages. By reading/using this AOTH/Richard Mills website/newsletter/article, and whether you actually read this Disclaimer, you are deemed to have accepted it.

Any AOTH/Richard Mills document is not, and should not be, construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

AOTH/Richard Mills has based this document on information obtained from sources he believes to be reliable, but which has not been independently verified.

AOTH/Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness.

Expressions of opinion are those of AOTH/Richard Mills only and are subject to change without notice.

AOTH/Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, AOTH/Richard Mills assumes no liability for any direct or indirect loss or damage for lost profit, which you may incur as a result of the use and existence of the information provided within this AOTH/Richard Mills Report.

You agree that by reading AOTH/Richard Mills articles, you are acting at your OWN RISK. In no event should AOTH/Richard Mills liable for any direct or indirect trading losses caused by any information contained in AOTH/Richard Mills articles. Information in AOTH/Richard Mills articles is not an offer to sell or a solicitation of an offer to buy any security. AOTH/Richard Mills is not suggesting the transacting of any financial instruments.

Our publications are not a recommendation to buy or sell a security – no information posted on this site is to be considered investment advice or a recommendation to do anything involving finance or money aside from performing your own due diligence and consulting with your personal registered broker/financial advisor.

AOTH/Richard Mills recommends that before investing in any securities, you consult with a professional financial planner or advisor, and that you should conduct a complete and independent investigation before investing in any security after prudent consideration of all pertinent risks.  Ahead of the Herd is not a registered broker, dealer, analyst, or advisor. We hold no investment licenses and may not sell, offer to sell, or offer to buy any security.


© 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