The Global Power Struggle for Food Will Keep Agriculture Prices on the Rise

Commodities were among the first-quarter’s best investments, rallying strongly across the board. Meanwhile global stock markets slumped to their worst performance in several years.

Recently however, volatility also entered commodity futures markets. Just a few weeks ago investors suffered very sharp sell-offs in a range of hard assets including gold, crude oil, and industrial metals like copper and aluminum.

Agricultural commodities have been stellar performers in recent months, but here too increased volatility has crept into the grain markets. But there’s good reason to believe that any downside in soft commodities will be limited by the fact the we are in the midst of a global food crisis – there’s just not enough to go around.

Yesterday rice prices jumped to fresh record highs, and corn traded near its highest level ever. Soybeans and wheat also advanced strongly. Bloomberg reports that “Indonesia, the world's third-largest rice producer, may join China, India, Vietnam and Egypt in curbing exports to secure domestic supplies.”

What we’re seeing now is nothing short of a full-scale global power struggle to secure valuable food resources, which grow scarcer each year. Rice for example is the staple food for about 3 billion of the world’s people, mostly in poorer, developing nations. Since 2005, the prices of food staples (including rice) have soared 80%.

This is triggering sharp inflation spikes throughout the developing world – which in turn has sparked troubling social unrest.  Consumer prices in China rose 8.7% in February to an 11-year high. Inflation in India is at a 13-month peak.

The United Nations is warning that “36 countries, including China, face food emergencies this year, as stockpiles of grains such as rice drop to a 26-year low.” The World Bank points to social unrest in 33 countries around the world because of “the acute hike in food and energy prices.”

Of course population growth, along with rising living standards around the world, is one of the key “demand factors” most often cited for soaring food prices. Another factor to keep an eye on is soaring input costs – which is keeping upward pressure on prices from the supply side too.

U.S. farmers for instance are paying much higher prices for diesel fuel to power their combines, nitrogen fertilizers to nurture their crops, and livestock feed. In fact, while commodity prices received by farmers jumped 17% year over year in March – the costs incurred by farmers to grow grains and livestock soared 11% over the same period.

These higher “input costs” will inevitably get passed along over the next few months in the form of... you guessed it: Even higher agricultural commodity prices.

Comments

[testersman]

the prize of oil is so high also

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