Wednesday, January 19, 2011

Commodities Soar - Food Scarcities Begin

Bloomberg reported that
World food prices rose to a record in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.

An index of 55 food commodities tracked by the Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous all-time high of 213.5 in June 2008, the Rome-based UN agency said in a monthly report. The gauges for sugar and meat prices advanced to records.

Sugar climbed for a third year in a row in 2010, and corn jumped the most in four years in Chicago. Food prices may rise more unless the world grain crop increases “significantly” in 2011, the FAO said Nov. 17. At least 13 people died last year in Mozambique in protests against plans to lift bread prices....

White, or refined, sugar traded at $752.70 a metric ton at 11:53 a.m. on NYSE Liffe in London, compared with $383.70 at the end of June 2008. Corn, which added 52 percent last year on the Chicago Board of Trade, was at $6.01 a bushel, down from $7.57 in June 2008. Soybeans were at $13.6325 a bushel, against $15.74 at the close of June 2008.

Part of the growing world food crisis is Chinese demand and Russia’s worst drought in a half-century which devastated their grain crops. Russia even declared that they were keeping their grain to themselves and not exporting any. It was reported by one UN agency that global grain output will have to rise at least 2 percent this year in order to meet demand in 2011-2012 and to avoid further depletion of stocks.

We are again facing record fuel prices as the Saudis increased prices to $100 per barrel. We should bear in mind that this inflated price may come from Ben Bernanke's printing presses. The prices of commodities will rise as the dollar has less buying power and becomes worth less with more of them in circulation.

One recent article sent to me mentioned the publication entitled the USDA's Disaster Designation Areas. In order to be included in this designation, a county must have suffered a minimum 30% loss in one crop to be declared a disaster area.
A sampling of the USDA's Disaster Designation Areas for this past year includes:

* The whole states of Alabama and Arkansas

* 58 out of 77 counties in Oklahoma

* 70 of 83 counties in Michigan

* 151 out of 159 counties in Georgia

* 63 out of 100 counties in North Carolina

The figures regarding crop failures in the United States are quite staggering.

When you add into this the increased overseas demand for food supplies (China, Thailand and Japan for example), the need for corn for ethanol requirements in the United States, and farmers decreasing production of crops that are financially unappealing (wheat is one such financial loser in the marketplace), then the stage is set for soaring food prices.

For example:

* In 1981 the United States had 88 million acres planted in wheat.

* 2010 saw a reduction in wheat acreage to 47.6 million acres planted in wheat and wheat production down by 25%. Our national wheat stores are down by 10% and now Australia's floods have shut down key grain ports, underpinning global concerns of tight grain supplies and rising food costs.

* Barley stores are down by 35% and corn stores are down by 12%.


* Dairy and vegetable oil prices have risen by over 40% this past year

* Wheat prices saw a 47% increase

* Corn prices have risen 50%

* Soybean prices are 34% higher

* The United Nations is forecasting food prices rising by an additional 40% this year.

Many countries are already experiencing rioting over food. It's happening in Africa, and the Persian Gulf and popping up in Southeast Asia (Laos).

French President Sarkozy is concerned enough to take the issue to the G20.

Max Krieger says we haven't seen anything yet with regard to commodity inflation:
Food is becoming scare at a “reasonable” price in many parts of the globe and the symptoms of this are starting to bubble up to the surface. For example in recent days we have witnessed food riots in Algeria and Tunisia where at least 14 people are reported to have died in each country.

The unemployment picture is just as bleak:

Meanwhile: Jobless claims hit a 10-week high last week while producer prices shot up in December, ...

The number of Americans filing for first-time unemployment benefits rose unexpectedly to 445,000 from 410,000 in the prior week, a Labor Department report showed. It was the biggest one-week jump in about six months and confounded analyst forecasts for a small drop to 405,000....

"The jobless number highlights the patchy recovery we've seen in the job market and reinforces that it will be a slow process bringing down the jobless rate," said Omer Esiner, market analyst at Commonwealth Foreign Exchange in Washington.

The four-week moving average of new claims, which strips out short-term volatility, rose by 5,500 last week to 416,500...

Though underlying inflation trends remain tame in the United States, food and energy costs were rising briskly at the wholesale level as 2010 drew to a close....

A recent spike in global food costs has raised fears of a crisis in the poorer corners of the developing world.

World food prices hit a record high last month, outstripping the levels that sparked riots in several countries in 2008, and key grains could rise further, the United Nations' food agency said recently....

Another key factor is the bleak jobs picture, not helped by the Labor Department data. ...

the total number of Americans on benefit rolls, including those receiving extended benefits under emergency government programs, jumped to 9.19 million from 8.77 million.

For sure, we'll likely see $5 gasoline by Memorial Day.

Of course Ben Bernanke, and company, will be telling us all that things are looking up.

I hope you have been perusing the seed catalogs and planning what to plant this season.