Food price hikes: Why I blame investors
By Andrew Hepburn - Monday, September 24, 2012 - 0 Comments
Andrew Hepburn is a former hedge fund researcher. He writes on commodities, the stock market and the financial industry–but without the jargon.
Once again, food prices are soaring. For the third time in five years, the world seems on the verge of a crisis. Prices for corn, soybeans and wheat have all skyrocketed on international markets, rising 21 per cent, 41 per cent and 31 per cent respectively since the start of the year.
The key question is: Why?
The standard answer is that there are a plethora of factors making food more expensive worldwide. The International Monetary Fund lists them in the following order, which is fairly typical:
• Strong food demand from emerging economies, reflecting stronger per capita income growth, accounts for much of the increase in consumption. Although demand growth has been high for some time now, the recent sustained period of high global growth contributed to depleting global inventories, particularly of grains.
• Rising biofuel production adds to the demand for corn and rapeseeds oil, in particular, spilling over to other foods through demand and crop substitution effects. Almost half the increase in consumption of major food crops in 2007 was related to biofuels, mostly because of corn-based ethanol production in the US; and the new biofuel mandates in the US and the EU that favor domestic production will continue to put pressure on prices.
(…)
• The policy responses in some countries are exacerbating the problem: (i) Some major exporting countries have introduced export taxes, export bans, or other restrictions on exports of agricultural products. (ii) Some importing countries are not allowing full pass-through of international prices into domestic prices (less than half a sample of 43 developing and emerging market countries allowed for full pass through in 2007).
• Drought conditions in major wheat-producing countries (e.g., Australia and Ukraine), higher input costs (animal feed, energy, and fertilizer), and restrictive trade policies in major net exporters of key food staples such as rice have also contributed.
• Financial factors: the depreciating US$ increases purchasing power of commodity users outside of the dollar area; falling policy interest rates in some major currencies reduce inventory holding costs and induce shifts from money market instruments to higher-yielding assets such as commodity-indexed funds.
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North America’s corn belt is baking, and everyone is about to feel the burn
By Charlie Gillis - Monday, July 23, 2012 at 11:00 AM - 0 Comments
The worst draught in a quarter-century is threatening the global food supply
Daniel Acker/Bloomberg/Getty Images
Fred Below has never grown corn in hell, but this summer he’s gotten a sense of what it might be like. “Your crop would be burning up,” he surmises in Midwest deadpan, “and you’d be telling the Devil, ‘Man, we need rain bad.’ ” A crop biologist with the University of Illinois at Urbana-Champaign, Below is given to neither blasphemy nor idle humour. In recent weeks, he’s watched with dismay as the corn he grows on four research farms throughout the state has curled and shrank in the face of a seemingly infernal heat wave.
As his crops go, so does the great North American corn belt. Grappling with the worst drought in a quarter-century, farmers in the normally verdant lands stretching from Nebraska to southern Ontario are looking ahead to a harvest bust, as the stalks in their fields fade to yellow and nod toward the earth. Under the husks, the kernels have shrivelled to rubbery grains, meaning that the quality of the surviving corn is declining, even as maize prices soared this week toward a record US$8 a bushel.
Last week, the U.S. Department of Agriculture cut its overall forecast of America’s harvest by 12 per cent, noting that three-quarters of the country’s corn-producing land sits in a drought zone where as little as 10 mm of rain has fallen since early June. In Illinois, as much as a third of the crop could be lost, says Below, and even a sudden dose of moisture won’t turn things around. The heat struck during a critical period in plant development, he explains, desiccating pollen just as the transfer process was about to begin. “Right now, we’re setting the potential number of kernels on the plant,” he says. “During that period, hot and dry are as bad a set of conditions as can be.”
