Food Shortages Are Here!

This sign was recently posted at WalMart. Food shortages have become a reality. Higher food prices aren't far away!

Farm Production Weak

"The 12 month period that concluded at the end of April was the wettest 12 month period in U.S. history, and more storms just kept on coming throughout the month of May," said Michael Snyder today.
Bloomberg said yesterday, "There has never been a spring planting season like this one. Rivers topped their banks. Levees were breached. Fields filled with water and mud. And it kept raining." 

Despite this, it appears that corn and other agricultural prices may have topped out.

Are We Facing a Food Crop Crisis Soon?

This is the latest headline that I saw today that portends a possible food crisis by late this summer.

I'm not surprised because the corn commodity price accelerated higher last Friday. I wonder if this is a sign of things to come. I had hoped and expected that prices might reverse and go lower, but the price accelerated higher instead. Note the last few candlesticks on the right that were even longer and closed even higher on Friday this last week.And it's not just corn, either. Other food commodities are skyrocketing as well!

The main reason for this is that North America has been very wet this spring. Much of America's midwest farm land is flooded.
Why isn't this in the news headlines?

Will Food Inflation Leap This Year?

From Successful Farming website:
"Mired by a rainy and chilly spring, U.S. farmers may soon give up on planting corn in rain-soaked parts of the Farm Belt because it is getting too late for money-making yields, said economist Scott Irwin of the University of Illinois. “I truly believe we are in ‘black swan’ territory as far as late corn planting is concerned,” he said over the weekend, using a term popularized during the financial crisis a decade ago." 
The US Department of Agriculture reported last week that only 30% of U.S. corn acres were planted as of May 12; that's the fourth-slowest in records back to 1980 -- way behind the five-year average of 67%. 
But perhaps there's still hope for a good crop this year. Reuters also had this:
"Rain-driven planting delays for U.S. corn have been dragged out long enough to cause a noticeable rally in Chicago-traded futures, but speculators were not yet ready to shed their enormously bearish positions as of early last week."

Food Commodity Prices Skyrocket!

The weather-related events in North America are keeping farmers in the United States from planting their crops. One article I read last week indicated that corn planting by mid-May was only at 30%, whereas it typically is at 66% most years. This has caused the price of corn to leap higher and higher! The chart below shows the price of corn, but is similar for other food and grain commodities also!

The following quote is from Reuters this morning:

   "The talk between traders is that "prevented planted" acres
for corn may be as high as 5 million acres," said Ole Houe,
director of advisory services at brokerage IKON Commodities. 
    "Whereas in the past, we have never seen it above 3.6
million acres and then there is the debate over "yield drag"
from later planted corn."
    Showers over the next 10 days are threatening to further
slow planting from the Dakotas to Illinois, regions that have
endured torrential rain this spring, the Commodity Weather Group
said.

Food Commodities Know No Bounds

Grains are at similar levels to the commodity bubble of 2009, but there is no media coverage any more. These charts are today's chart for soybeans. Other food commodity prices are similarly leaping higher.

Intraday (today)

Daily chart -- that trend doesn't look "transitory" to me!

Corn -- highest price levels in three years! Up 120% since last summer! Corn is up 25% since July 1st!

Bad News for Anyone Who Eats

from Zero Hedge regarding this morning's USDA update:

So much for transitory inflation as corn prices are again pennies of a fresh all time high. Earlier today an update by the USDA showed that corn stocks will come in much lower than expected at the end of the 2011/12 marketing year at just 695 million bushels: this is far lower than the analysts consensus of 771 million bushels. The spring weather was blamed for the drop: "cold, rainy spring and flooding cut U.S. corn plantings by 1.6 percent, will reduce the harvest by 2 percent and will keep U.S. corn supplies at their tightest level in 15 years through the fall of 2012, the government said on Thursday." Another factor for the record price: surging China demand: "USDA also forecast a hefty increase in corn use by China -- up 8 million tonnes, or 5 percent, this year and up 13 million tonnes, or 8 percent, in 2011/12. China will draw down its stocks rather than import corn, USDA said." Just like in China where record droughts have been replaced with deadly floods, the weather continues to be unusually volatile, not just in the US: "Besides plaguing the eastern Corn Belt, rains and floods have slashed the rice crop by 5.5 percent since May, USDA said. Drought in the Southwest would reduce the cotton crop by 1 million bales, or nearly 6 percent, to 17 million bales, and the rice crop, at 199.5 million hundredweight, would be the smallest in four years." This is probably the latest data the market needed to completely ignore today's worse than expected initial claims data, and go into full "Inflation: ON" mode. In other news, expect Obama to announce the launch of an Adverse Weather Task Force investigating speculative movements in air masses momentarily.

Farmers Stressed, Food Prices Rise, Food Shortages to Come

also from Zero Hedge:

CEO of largest hog producer in the U.S. said this today:

"There are record prices for livestock but farmers are exiting the business!" he exclaims. "Why? Farmers know they won't make money."
We are just one bad weather event away from potentially $10 corn, which once again is another 50% increase in the input cost to our live production."
Mr. Pope recalls what happened the last time there was a surge in corn prices, in 2008: "The largest chicken processor in the United States, Pilgrim's Pride, filed for bankruptcy." They "couldn't raise prices, so their cost of production went up dramatically." Could it happen again? "It darn well could!" Mr. Pope exclaims.

…Mr. Pope says the "losers" here "are the consumer, who's going to have to pay more for the product, and the livestock farmer who's going to have to buy high-priced grain that he can't afford because he's stretching his own lines of credit. The hog farmer . . . is in jeopardy of simply going out of business 'cause he doesn't have the cash liquidity to even pay for the corn to pay for the input to raise the hog. It's a dynamic that we can't sustain."

Closing comments from the author of the article that reported this:

So here’s a CEO, someone with actual business experience (not some moron academic who’s never run a business a day in his life) telling us the following:

• Food prices are up a lot and going higher in the future.
• Despite high food prices, farmers are quitting farming (lower supplies are coming).
• Food companies will be going bankrupt (even lower supplies are coming).

In other words, we are rapidly heading into a food crisis. Food prices are NOT going to be coming down. And we’re going to be seeing food shortages in the US in the coming months.

High Gas and Food Prices May Kill Economy

The combination of rising gasoline prices and the steepest increase in the cost of food in a generation is threatening to push the US economy into a recession, according to Craig Johnson, president of Customer Growth Partners.

Gas station in San Francisco.

Johnson looks at the percentage of income consumers are spending on gasoline and food as a way of gauging how consumers will fare when energy prices spike.

With gas prices now standing at about $3.90 a gallon, energy costs have now passed 6 percent of spending—a level that Johnson says is a "tipping point" for consumers.

"Energy is not quite as essential as food and water, but is a necessity in today's economy, and when gasoline costs more than bottled water—like now—then it takes a huge bite out of disposable spending," he said, in a research note.

Of the six US recessions since 1970, all but the "9-11 year 2001 recession" have been linked to—of not triggered by—energy prices that crossed the 6 percent of personal consumption expenditures, he said. (During the shallow 2001 recession, energy prices had risen to about 5 percent of spending, which is higher than the long-term 4 percent share.)

What may make matters worse this time around, is there has been a steep increase in food prices that occurred as well. In other recent recessions food costs were benign, at between 7.5 percent and 7.8 percent of spending.

This year food prices have climbed 6.5 percent since the beginning of early January, according to Consumer Growth Partners.

"The combined increase in the necessities of food and energy creates a harsh double whammy for already stressed consumers," Johnson said. The last time this happened was in the recession that lasted from 1973 to 1975.

Johnson estimates that food and energy eat up about 15 percent of consumer spending at today's prices, compared with about 12.7 percent two years ago.

Of course, at lower income levels, these percentages are much higher. One sign of the stress some consumers are already feeling is that some AAA offices have already seen an increase in out-of-gas service calls, as motorists try to put off filling their tanks or drive around trying to seek out the gas station with the least expensive price.

Also some regions are being hit harder than others. Gas prices in Hawaii continue to set new highs, according to AAA data. The average price on Wednesday was $4.51, topping the prior record of $4.50 for a gallon of regular unleaded set in July 2008.

Quick Macro Assessment of Risks

I don't think Wall Street sees this yet. I wouldn't be surprised if we see another rally at the open of the trading day this morning. Risks of another calamity are rising. Risk abounds!

The World Bank just released a rather dire assessment, too. The President of the organization says that we're just "one shock away from a full-blown crisis" and that we risk "losing a generation" due to high food prices. Unrest assured!

excerpt from FT:
As the US moves into the second quarter of 2011, it is tempting to make comparisons with a year ago, just before the double-dip scare in the country pushed down global markets and interest rates. Now, US growth estimates are slipping, the Federal Reserve is talking about an exit strategy and external shocks – the Arab Spring and Japan’s earthquake – have boosted macro-economic risks. Furthermore, US fiscal policy is tightening instead of easing.
In contrast to 2010, which saw extra fiscal stimulus in December, forthcoming public spending cuts will lower growth in 2011. The battle over a possible US government shutdown has already cut $40bn from the 2011 budget, shaving about half a percentage point from midyear annualised growth rates. Momentum on reducing the deficit is building in Washington as Congress and the White House consider reform to benefit entitlements.

UN Report Reveals New Record Food Prices

(Reuters) - Global food prices measured by the U.N.'s food agency may have come off record highs in March after falls in grain prices, but supply concerns and soaring oil prices mean such a move could just be a pause before new peaks.
The United Nations' Food and Agriculture Organization (FAO) on Thursday publishes its monthly Food Price Index, which measures price changes for a basket of cereals, oilseeds, dairy, meat and sugar.
The index hit a record high in February for a second straight month, passing peaks seen in 2008 during a food crisis which sparked riots and panic buying in places as far apart as Haiti, Cameroon and Egypt.
The FAO warned last month that fresh oil price spikes and stockpiling by importers keen to avert popular unrest would rock already volatile grain markets and food prices would remain close to record highs until new crop conditions are known.
World wheat and corn prices fell in the first three weeks of March to levels well below 2008 peaks amid political turmoil in north Africa and the Middle East and natural disaster in Japan, before starting to recover at the end of March.
Benchmark U.S. wheat futures lost about 3 percent for the month of March, while corn futures fell 4 percent, but both have been rising since the start of April on the back of persistent concerns about tight supplies and bad weather.
Strong demand for grains and vegetable oils from biofuels industry is also seen by FAO and other analysts as a driving force for food price rises, despite expected increases in planted areas this year.
Soaring oil prices are also adding to food product costs.
Oil prices on Wednesday rose to their highest since August 2008, driven by unrest in the Middle East and North Africa and dollar weakness ahead of an expected European Central Bank interest rate rise on Thursday.

Food Inflation Leaps Most In 36 Years!

WASHINGTON (AP) -- Wholesale prices jumped last month by the most in nearly two years due to higher energy costs and the steepest rise in food prices in 36 years. Excluding those volatile categories, inflation was tame.
The Labor Department said Wednesday that the Producer Price Index rose a seasonally adjusted 1.6 percent in February -- double the 0.8 percent rise in the previous month. Outside of food and energy costs, the core index ticked up 0.2 percent, less than January's 0.5 percent rise.
Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.
Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.
Separately, the Commerce Department said home construction plunged to a seasonally adjusted 479,000 homes last month, down 22.5 percent from the previous month. It was lowest level since April 2009, and the second-lowest on records dating back more than a half-century.
The building pace is far below the 1.2 million units a year that economists consider healthy.
There was little sign of inflationary pressures outside of food and energy. Core prices have increased 1.8 percent in the past 12 months.
Still consumers are paying more for the basic necessities.
Gas prices spiked in February and are even higher now. The national average price was $3.56 a gallon Tuesday, up 43 cents, or 13.7 percent, from a month earlier, according to the AAA's Daily Fuel Gauge. Rising demand for oil in fast-growing emerging economies such as China and India has pushed up prices in recent months. Turmoil in Libya, Egypt and other Middle Eastern countries has also sent prices higher.
But economists expect the earthquake in Japan to lower oil prices for the next month or two, which should temper increases in wholesale prices in coming months. Japan is a big oil consumer, and its economy will suffer in the aftermath of the quake. But as the country begins to rebuild later this year, the cost of oil and other raw materials, such as steel and cement, could rise.
Oil prices fell sharply Tuesday as fears about Japan's nuclear crisis intensified. Oil dropped $4.01, or 4 percent, to settle at $97.18 per barrel on the New York Mercantile Exchange.
Food costs, meanwhile, are rising. Bad weather in the past year has damaged crops in Australia, Russia, and South America. Demand for corn for ethanol use has also contributed to the increase.
Prices rose 1 percent for apparel, the most in 21 years. Costs also increased for cars, jewelry, and consumer plastics.

Japan's Earthquake and Tsunami Disasters and Their Impact on Commodity Markets

from Agrimoney.com:

Japan's disaster may have a significant impact on grain prices. But not in a way that is not immediately apparent.

Sure, it is likely that the disaster will, for a while, continue to add to the negative pressure already weighing on agricultural commodities.

The country is, after all, one of the world's biggest (and perhaps the biggest) food importers, relying on bought-in products for 60% by calories of what its citizens eat, according to the US Department of Agriculture.

So any sign of a fall-off in its demand following the devastating earthquake and tsunami would be felt in easing up tight crop supply pipelines.

And external markets may not offer much support, given that investors were already in the mood for dumping riskier assets, such as shares and metals as well as crops.

Yen factor

For now, the potentially stimulating impact on Japanese food imports of the disaster are unlikey to get a look in.

The idea that Japan the need to import more food – albeit maybe of, say, finished products such as pork rather than feed corn - if much the country's own agricultural capabilities have been put out of action.

And of it having the stronger currency to make buy-ins more affordable. Ironically, one of the expected impacts of the disaster is to strengthen the yen, as insurers repatriate funds to pay claims, and the country sells foreign currency reserves, largely in US Treasury bonds, to raise cash.

After the Kobe earthquake in 2005, the yen appreciated by some 20% against the dollar within three months.

Food vs fuel 

But a longer-term impact may become harder to ignore – in reviving the case for agricultural commodities as a source of energy as well as food.

Soaring food prices appeared, early in the year, to have the biofuels lobby on the ropes, with energy crops seen as taking farmland from its "true" purpose of feeding the world.

However, the nuclear reactor problems caused by Japan's earthquake have redrawn question marks over one key form of conventional energy creation at a time when the shortcomings of another, oil, were already being examined following the unrest in the Middle East and North Africa.

Fuel security is back on the agenda. And while other conventionals such as coal and natural gas will do their bit to fill the gap, as will alternative sources such as wind and tidal power, farmers will likely be asked to carry a bigger burden -  even at a price in world food security.

UN Says New Record for Food Prices in February

PPI Up .8%, Housing Starts Rises

from Zero Hedge:

The PPI including food and energy came at 0.8%, in line with expectations, and a decline from the previous 1.1%. Ex food and energy, Producer Prices jumped from 0.2% to 0.5%, and over 100% higher than expectations of 0.2%. Somehow, food PPI increased by just 0.3%, the lowest since August, and once again making one wonder which Department of Truth is more unbelievable: ours or the Chinese. From the release: The Producer Price Index for finished goods rose 0.8 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.9 percent in December and 0.7 percent in November and marks the seventh straight rise in finished goods prices. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.1 percent, and the crude goods index rose 3.3 percent. On an unadjusted basis, prices for finished goods advanced 3.6 percent for the 12 months ended January 2011.... The index for finished consumer foods moved up 0.3 percent in January, the fifth consecutive monthly increase. A 13.7-percent advance in prices for fresh and dry vegetables was the main factor in the January rise in the finished consumer foods index...In January, the index for intermediate foods and feeds moved up 0.4 percent for the second consecutive month. A 2.7-percent rise in beef and veal prices accounted for about forty percent of the January increase in the intermediate foods index.

Prepare for Higher Food Prices

Warnings of higher food prices headed for American supermarkets and restaurants were swallowed easily across much of farm country Wednesday.
The big gulp came when the U.S. Department of Agriculture reported that global demand had pushed U.S. corn supplies to their lowest point in 15 years.
The price of corn, which has doubled over the past six months, affects most food products in supermarkets. It's used to feed the cattle, hogs and chickens that fill the meat aisles.
It is the main ingredient in Cap'n Crunch and Doritos. Turned into syrup, it sweetens most soft drinks and many foods.
Corn also is part of the agricultural blend that fuels the economies of Nebraska, Iowa and other farming states. Iowa is the nation's top corn-producing state; Nebraska is third.
Shoppers could see higher grocery bills as early as three months from now, though most of the impact won't be felt for another six months, said Scott Irwin, an agricultural economics professor at the University of Illinois.
Chicken prices are among the first to rise because the bird's life span is so short that higher feed costs get factored in quickly, he said. Price hikes for hogs take about a year and cattle two years. Prices on packaged foods take six or seven months to rise.
Tyson Foods, the nation's biggest meat company, said chicken, beef and pork prices are expect to rise this year, if only slightly, as producers seek to cover costs.
ConAgra Foods Inc. — the Omaha-based producer of brands including Healthy Choice, Banquet and Chef Boyardee — is raising prices on some of its products because of higher costs for corn and fuel, said Teresa Paulsen, a spokeswoman.
The price rally has bolstered the financial fitness of America's crop and livestock operators over the past eight months. Midwestern cropland is yielding record values. Rural banks and equipment makers report record profits.
“We're seeing record income levels for the ag community and ... wealth accumulation that cannot be denied,” said Bruce Johnson, an agricultural economist at the University of Nebraska-Lincoln. “We've moved into a whole new level.”
Said Bruce Babcock, an agricultural economist at Iowa State University: “Farmers are going to be earning quite a bit more money.”
Jason Henderson, Omaha branch executive for the Federal Reserve Bank of Kansas City, said farmers are buying more tractors, pickup trucks, grain bins and land.
“And they also come to Omaha to shop and go to events,” he said.
But it hasn't been simply a spending spree, Henderson said. Farmers are paying down debt and fewer are seeking loan renewals or extensions.
“It's a good time to be an ag banker,” said Brian Esch, president of McCook National Bank in southwest Nebraska. “But I have concerns over what this means for consumers. If one guy is selling at a record profit, someone is buying at a record level.”
Corn prices have risen over the past six months from $3.50 a bushel to nearly $7.
The U.S. will have a reserve of 675 million bushels left over in late August, when this year's harvest begins. That's roughly 5 percent of all corn that will be consumed, the lowest surplus level since 1996.
“There is going to be enough corn for food, for feed, for fuel and for export opportunities,” Tom Vilsack, the U.S. agriculture secretary, said at a Washington press conference.
Babcock, the Iowa State economist, said the U.S. mandate to increase the use of renewable fuels like ethanol is a major reason why the nation's corn supply is so low. About a quarter of the nation's corn crop is consumed by the production of ethanol. The ethanol industry's projected corn orders this year have risen . . . after record-high production in December and January, USDA said.
“We've created a hungry business that is dependent on corn, even high-priced corn,” Babcock said.
Johnson, the UNL economist, said global supply and demand are the root causes behind low U.S. corn stocks.
“Ethanol is a factor, but it's not the driver,” he said.
Johnson said the declining value of the dollar not only has fueled greater agricultural export demand, but also has driven up the price of oil. That, in turn, has propelled higher prices for corn-based ethanol.
The agricultural economies of Nebraska and Iowa will continue to grow into greater prominence as global food providers, economists said.
Johnson said rising population numbers globally and greater demand in major developing countries for higher-protein diets have strengthened the Midlands' agricultural market.
Farm cash receipts — led by corn and other crops — doubled in Nebraska from 2000 through 2010. Crop receipts alone ended the decade in the $9 billion range, up from a 2000 total of $3 billion.
Nebraska's net farm income hit a record $4.25 billion last year, according to preliminary estimates. The 2010 level would be nearly 65 percent above the 10-year historical average, Johnson said.
Although farm income represents only about 6 percent of Nebraska's $75 billion personal income total, it has a major impact on local and regional economies, Johnson said.
“There is no question that agriculture buffered the state from going into a deeper recession these last few years, and it has helped pull us out of the recession faster than other areas,” he said. “Agriculture has been our pack horse.”
World-Herald staff writer Ross Boettcher contributed to this report, which also includes information from World-Herald press services.

While Food Commodities Go Parabolic!

Finally, Someone Connects the Food Dots

Here's just one more dot to connect: the Fed's disastrous monetary policy is the partial cause of food inflation, and thus a trigger for food riots all over the developing world! 

by Ambrose Evans-Pritchard

If you insist on joining the emerging market party at this stage of the agflation blow-off, avoid countries with an accelerating gap between rich and poor. Cairo’s EGX stock index has dropped 20pc in nine trading sessions.

Events have moved briskly since a Tunisian fruit vendor with a handcart set fire to himself six weeks ago, and in doing so lit the fuse that has detonated Egypt and threatens to topple the political order of the Maghreb, Yemen, and beyond.

As we sit glued to Al-Jazeera watching authority crumble in the cultural and political capital of the Arab world, exhilaration can turn quickly to foreboding.

This is nothing like the fall of the Berlin Wall. The triumph of secular democracy was hardly in doubt in central Europe. Whatever the mix of aspirations of those on the streets of Cairo, such uprisings are easy prey for tight-knit organizations – known in the revolutionary lexicon as Leninist vanguard parties.

In Egypt this means the Muslim Brotherhood, whether or not Nobel laureate Mohammed El Baradei ever served as figleaf. The Brotherhood is of course a different kettle of fish from Iran’s Ayatollahs; and Turkey shows that an ‘Islamic leaning’ government can be part of the liberal world – though Turkish premier Recep Tayyip Erdogan once let slip that democracy was a tram “you ride until you arrive at your destination, then you step off."

It does not take a febrile imagination to guess what the Brotherhood’s ascendancy might mean for Israel, and for strategic stability in the Mid-East. Asia has as much to lose if this goes wrong as the West. China’s energy intensity per unit of GDP is double US levels, and triple the UK.
The surge in global food prices since the summer – since Ben Bernanke signalled a fresh dollar blitz, as it happens – is not the underlying cause of Arab revolt, any more than bad harvests in 1788 were the cause of the French Revolution.
Yet they are the trigger, and have set off a vicious circle. Vulnerable governments are scrambling to lock up world supplies of grain while they can. Algeria bought 800,000 tonnes of wheat last week, and Indonesia has ordered 800,000 tonnes of rice, both greatly exceeding their normal pace of purchases. Saudi Arabia, Libya, and Bangladesh, are trying to secure extra grain supplies.
The UN’s Food and Agriculture Organization (FAO) said its global food index has surpassed the all-time high of 2008, both in nominal and real terms. The cereals index has risen 39pc in the last year, the oil and fats index 55pc.
The FAO implored goverments to avoid panic responses that “aggravate the situation”. If you are Hosni Mubarak hanging on in Cairo’s presidential palace, do care about such niceties?
France’s Nicolas Sarkozy blames the commodity spike on hedge funds, speculators, and the derivatives market (largely in London). He vowed to use his G20 presidency to smash the racket, but then Mr Sarkozy has a penchant for witchhunts against easy targets.
The European Commission has been hunting for proof to support his claims, without success. Its draft report – to be released last Wednesday, but withdrawn under pressure from Paris – reached exactly the same conclusion as investigators from the IMF, and US and British regulators.
“There is little evidence that the price formation process on commodity markets has changed in recent years with the growing importance of derivatives markets”, it said.
As Jeff Currie from Goldman Sachs tirelessly points out, future contracts are neutral. For every trader making money by going long on wheat, sugar, pork bellies, zinc, or crude oil, there is a trader losing money on the other side. It is a paper transfer between financial players.
You have to buy and hoard the vast amounts of these bulk commodities to have much impact on the price, which is costly and difficult to do, though people do park crude on floating tankers sometimes, and Chinese firms allegedly stashed copper in warehouses last year.
But that is not what commodity index funds with $150bn are actually doing with food, base metals, and energy. Only governments have strategic petroleum and grain reserves big enough to make a difference.
The immediate cause of this food spike was the worst drought in Russia and the Black Sea region for 130 years, lasting long enough to damage winter planting as well as the summer harvest. Russia imposed an export ban on grains. This was compounded by late rains in Canada, Nina disruptions in Argentina, and a series of acreage downgrades in the US. The world’s stocks-to-use ratio for corn is nearing a 30-year low of 12.8pc, according to Rabobank.
The deeper causes are well-known: an annual rise in global population by 73m; the “exhaustion” of the Green Revolution as the gains in crop yields fade, to cite the World Bank; diet shifts in Asia as the rising middle class switch to animal-protein diets, requiring 3-5 kilos of grain feed for every kilo of meat produced; the biofuel mandates that have diverted a third of the US corn crop into ethanol for cars.
Add the loss of farmland to Asia’s urban sprawl, and the depletion of the non-renewable acquivers for irrigation of North China’s plains, and the geopolitics of global food supply starts to look neuralgic.
Can the world head off mass famine? Yes, with leadership. The regions of the ex-Soviet Union farm 30m hectares less today than in the Khrushchev era, and yields are half western levels.
There are tapped hinterlands in Brazil, and in Africa where land titles and access to credit could unleash a great leap forward. The global reservoir of unforested cropland is 445m hectares, compared to 1.5 billion in production. But the low-lying fruit has already gone, and the vast investment needed will not come soon enough to avoid a menacing shift in the terms of trade between the land and the urban poor.
We are on a thinner margin of food security, as North Africa is discovering painfully, and China understands all too well. Perhaps it is a little too early to write off farm-rich Europe and America.

Food Producers Preparing to Pass on Price Increases

from WSJ blogs:

Roaring commodity prices fueled inflationary pressures in the developing world last year, even as many developed nations fretted about deflation. But as 2011 starts off with stronger economic data in the U.S. and other advanced nations, signs point to a cautious return of pricing power there as well.
Commodities logged some of 2010’s strongest gains as strong demand for crops and materials in developing countries — coupled with a flood of monetary liquidity into the global economy from the Federal Reserve and other developed country central banks — prompted investors to buy everything from soy beans to copper futures. This anticipatory buying helped palladium, which is used in car parts, to gain 96.5% while cotton broke its Civil War record with a 91.5% price increase.
These higher prices manifested in rampant inflation in many parts of the developing world, where robust economic growth is helping a new class of consumers discover the material comforts that developed country consumers are accustomed to. New coffee drinkers in Brazil and China, for instance, helped augment existing demand to lift bean prices 77% last year.
“A buzz word has been the new middle-income class, not from the U.S. or Europe but from China, India and Brazil,” said Yu-Dee Chang, chief principal at ACE Investment Strategists, with around $200 million under management. “They’ve never had a TV or a car so as they’re spending their new wealth they trigger inflation.”
Global food prices rose to a record in December, with the Food and Agriculture Organization of the United Nations’s food price index reporting its sixth straight monthly increase to 214.7. The index tracks monthly changes in international prices of a basket of commodities including meat, dairy, cereals, oils and sugar.
Some developing countries, where one third to one half of the average income is spent on food, are already feeling the political pressure of rising food inflation. In China, the government reined in credit availability and hiked interest rates after double-digit leaps in food prices awakened concerns about economic stability.
Yet fears of runaway price gains caused by the Fed’s loose monetary policy, which pushed inflation hedges like gold to a closing record of $1,421.40 per troy ounce in December, failed to materialize. Three years of economic downturn in the developed world left spending so weak that businesses had to cut prices to attract customers, making deflation a far bigger concern for policymakers than inflation.
Now, that trend could be ending. U.S. retailers, for instance, were able to avoid deep discounting this past holiday season. And in coming months, stronger U.S. growth may finally let companies pass higher costs to consumers and start the upswing in the inflation cycle.
A gangbusters U.S. report on private sector jobs growth Wednesday was the latest indicator of brighter economic times ahead. Meanwhile, Germany’s economy is growing strongly and even the sickly U.K. is seeing a recovery in manufacturing.
A growth acceleration is very likely in 2011, says Lakshman Achuthan, managing director of the Economic Cycle Research Institute, which publishes the closely watched Weekly Leading Indicators. The WLI has been signaling a revival in economic growth.
Achuthan says the WLI has been showing faster growth from private-sector sources well before the Fed’s $600 billion fiscal stimulus or Washington passed the 2011 tax-cut package. As a result, U.S. demand should get a triple boost this year, and growth should be robust enough to let price increases stick.
The ECRI’s leading inflation gauge indicates that inflation is edging up — although not to worrisome levels. Similarly, a rise in yields on longer-dated Treasurys over the past month is thought to reflect a pickup in investors’ inflation expectations.
U.S. companies will welcome the opportunity to charge more because they have so far been absorbing higher input costs. The latest prices-paid indexes from the Institute for Supply Management increased in December.
Indeed, businesses are already expecting to mark up their price lists this year. VF Corp., which makes Lee and Wrangler jeans, and Hanesbrands Inc. have said they will raise apparel prices in 2011 to offset higher cotton prices. A survey released last week by the Kansas City Fed showed that a rising number of regional manufacturers anticipate passing along higher costs to their customers.

Record World Food Prices

LONDON (MarketWatch) — Global food prices reached a record in December, above a previous high set in 2008, according to the monthly Food Price Index published Wednesday by the United Nations Food and Agriculture Organization.

The FAO’s food price index, which monitors the monthly change in international prices of a basket of commodities including meat, dairy, cereals, oils and sugar, rose for the sixth month in a row to 214.7, a record for data going as far back as 1990.

A combine harvester working in a wheat field.

The food index rose 4.3% from 206 in November and surpassed the previous record of 213.5 reached in June 2008, when soaring food prices caused widespread riots in many developing countries.
That surge in food prices was aggravated by a rise in other commodities such as oil but the price spike was short-lived, with prices pulling back by the following season as the world economy tumbled and farmers increased grain plantings on a vast scale.
The FAO’s sugar index rose 6.7% on the month and also hit a record high in December of 398.4, according to the data going back to 1990. The index last hit a record high in January 2010.
Sugar prices have climbed to around 30-year highs due to strong demand fand low inventories around the world.
The FAO’s oils price index also jumped, rising 8.1% to 263 in December from 243.3 in November, while the cereals price index climbed 6.4% to 237.6 from 223.3.
Month-on-month increases in the FAO’s price indexes for meat and dairy were more muted — 0.5% and 0.3%, respectively. Still, the meat price index hit a record high of 142.2 in December 2010.