Forget Oil, the New Global Crisis is Food

January 4th, 2008

“In 2008, food could become a out front national security issue in the developed world. My top concerns are wheat and corn. For hundreds of millions of people, especially in America and Europe, this will translate into higher food costs across the board.”

Cryptogon, Some Guesses About 2008

“PowerShares DB Agriculture Fund (DBA) NOTE: I am slightly overweight this one. If you look at the ongoing crises involved with food production, you see not just a perfect storm, but multiple perfect storms.”

Cryptogon, Portfolio Ideas

Via: Financial Post:

A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club’s 14th annual investment outlook in Toronto on Thursday.

“It’s not a matter of if, but when,” he warned investors. “It’s going to hit this year hard.”

Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.

“The greatest challenge to the world is not US$100 oil; it’s getting enough food so that the new middle class can eat the way our middle class does, and that means we’ve got to expand food output dramatically,” he said.

The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year.

Mr. Coxe said in an interview that this surge would begin to show in the prices of consumer foods in the next six months. Consumers already paid 6.5% more for food in the past year.

Wheat prices alone have risen 92% in the past year, and yesterday closed at US$9.45 a bushel on the Chicago Board of Trade.

At the centre of the imminent food catastrophe is corn – the main staple of the ethanol industry. The price of corn has risen about 44% over the past 15 months, closing at US$4.66 a bushel on the CBOT yesterday – its best finish since June 1996.

This not only impacts the price of food products made using grains, but also the price of meat, with feed prices for livestock also increasing.

“You’re going to have real problems in countries that are food short, because we’re already getting embargoes on food exports from countries, who were trying desperately to sell their stuff before, but now they’re embargoing exports,” he said, citing Russia and India as examples.

“Those who have food are going to have a big edge.”

With 54% of the world’s corn supply grown in America’s mid-west, the U.S. is one of those countries with an edge.

But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America’s grain harvest in 2007.

The amount of U.S. grain currently stored for following seasons was the lowest on record, relative to consumption, he said.

“You should be there for it fully-hedged by having access to those stocks that benefit from rising food prices.”

8 Responses to “Forget Oil, the New Global Crisis is Food”

  1. Loveandlight Says:

    I’ve posted the link to Richard Manning’s article The Oil We Eat in Harper’s magazine previously, but it really is one of those pieces of writing that one should reread every now and again.

  2. CensorMe Says:

    Good thing that the whole peak oil thing is a fake, cause without that oil, we’d be really screwed as far as food was concerned. As soon as all those wonderful alternative technologies are online, we should have really cheap food again.

    Hope it’s soon.

  3. Aaron Says:

    Is anyone asking why we are having an energy crisis, a food crisis and an economic crisis all at the same time?

    Especially when the economic crisis has such an air of deliberation about it and as Kevin regularly points out the energy crisis is kind of rigged too.

    Perhaps it’s only an amazing coincidence.

  4. outslaw Says:

    Does anyone know why PowerShares DB Agriculture Fund (DBA) was trading at about 5 times its normal volume today? The last volume spike of this size was when the price was at its all-time low, in May.

  5. Tim Says:

    Vainly waiting for sane and sober commentary from the money men on the brink of oblivion, results in gems such as this:

    “The greatest challenge to the world is not US$100 oil; it’s getting enough food so that the new middle class can eat the way our middle class does, and that means we’ve got to expand food output dramatically,” he said.

    This sorry show must be some sort of cosmic joke! The new middle class needs to eat the way our middle class does – wtf? Highly refined carbohydrates, sugars and trans fats, therefore high cholesterol, heart disease, diabetes and rampant obesity:(

    Why do these clowns always have to put forward our completely warped and unsustainable lifestyle as the benchmark for China, India, etc?

    Oh well, time to plant my new crop of potatoes…

  6. Kevin Says:

    @ CensorMe

    You wrote:

    As soon as all those wonderful alternative technologies are online, we should have really cheap food again.

    My advice: Set the crack pipe down.

  7. cryingfreeman Says:

    @ Aaron: Don’t forget the climate crisis, the terror crisis and the Iranian & N Korean nuclear esclation crises too.

  8. remrof Says:

    “Especially when the economic crisis has such an air of deliberation about it and as Kevin regularly points out the energy crisis is kind of rigged too.” –Aaron

    the food crisis is also almost certainly engineered, via bush’s totally ridiculous ethanol program (as the article mentions). you might be onto something. you too, cryingfreeman.

    so: energy, food, economic, climate, nuclear and terror crises, all arguably manufactured. jesus

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