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Famine Looms In The Future?

 

 

As if a bear market, credit crunch, energy crisis and city financing emergency were not enough for one year, experts say the world is now facing down the barrel of the worst catastrophe of all: famine.

The very idea that the modern world could run out of food seems ludicrous, but that is the flip side, or cause, of the tremendous recent increase in the cost of raw wheat, corn, rice, oats and soybeans. Food prices are not escalating because speculators have run them up for sport and profit, but because accelerating demand in developing nations, biofuel production and poor harvests in some areas have made basic foodstuffs truly scarce.

In energy circles, folks who warn about the beginning of the end of cheap fossil fuels talk about "peak oil" as a point we have dangerously and expensively crossed. Likewise, you can now add "peak wheat" to your political and investment lexicon. And it's a lot worse.

Wheat futures prices have tripled since 2004, corn prices have almost tripled since 2005, and soybeans have tripled since 2006. Meanwhile, crude oil is up merely 60% in the past three years, which makes it seem very bearable in comparison. U.S. stock prices have barely eked out a 10% advance since 2005, underscoring the diminishment of our buying power.

This is no joke, already, in Asia. Rice prices surged to a 20-year high this week -- more than $18 per hundred pounds -- as countries that have the most are hoarding it for their own people. Vietnam, India and Egypt have restricted exports to keep local markets stocked. Thai, Philippine and Indonesian officials are warning of civil unrest if the flow of rice does not increase.

Russia, Ukraine and Kazakhstan in recent weeks have restricted wheat exports as well, slapping on big tariffs to make sure shelves are stocked in their homelands amid soaring prices. A major Russian grains-company chief told Reuters that his country "is in a condition that has never happened before." Higher prices are not meeting any resistance from desperate buyers.

Most unusual about this phenomenon, according to BMO Financial Group strategist Don Coxe, is that until now, food crises in world history were regional concerns that arose from crop failures, war or pests. Once global trade of grains got going in the 19th century in a major way, food shortages in one country were ameliorated by imports, he said. What's happening now is a lack of supply everywhere at once.

Of course, the weather plays a role, too. A terrible drought in the breadbasket of Australia over the past two years has combined with bad harvests in Argentina and Brazil to create some of today's shortfall.

Shortages are real. The Financial Times reports that rice stocks have fallen this year to about 70 million tons, the lowest level in 25 years and less than half the total held in global inventories in 2000. Wheat inventories, called "carry-overs" in the trade, are at 30-year lows even though world wheat production was actually up 1% last year. In the past year, reports show, wheat inventories in the European Union have plunged to 1 million tons from 14 million tons.

A leading Canadian fertilizer executive told analysts recently that according to his company's calculations, global grain reserves are "precarious," at just 1.7 months of consumption, down from 3.5 months of reserves as recently as 2000.

Read the entire article, LINK here.

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