Plotlines: Grain prices in a bubble?

February 1, 2008

Beans in the teens, wheat in the teens, corn in the … well, above $5 a bushel. Do we have a bubble here? On Thursday, a Wall Street Journal story said farmers were wondering if grain prices would go the way of dot-coms or, more recently, housing. Wonder they should. (A Sept 28 Reuters story “U.S. ‘grain bubble’ in the making,” now looks a little premature.)

U.S. wheat prices are up 6 percent so far this year, topping $14 a bushel for the first time ever, at least on the Minneapolis Grain Exchange. That followed a 77 percent gain last year. Corn in 2008 is up 10 percent at 11-year highs, following last year’s 14 percent rally. Soybeans are toying with $13 for the first time, having gained 76 percent last year.

Some argue that agricultural commodities are less susceptible to a U.S. economic downturn. People still must eat. The Chinese are able to improve their diet as they get richer, for one. The biofuel crop craze has diverted food from people and livestock. Strange weather around the world has also wrought havoc on supply. Yet, over the last three decades, it looks like downturns in economic growth have preceeded declines in agriculture prices. (In the chart above, recessions are the shaded gray columns.)

And what are some of the most dangerous words in the market… “This time it’s different.” But what do you think? Are grains overbought?

Comments

Hope not.As a farmer grain and soyabean prices needed to rise to make production worthwile.

 

THis is my first blog on your site, tel me know if I am in line…There is a rice shortage in the MIddleeast and Asia and South Asia and South East Asia – We in North America buy rice from places like Thailand where rice exports are being curbed. China and India have huge number of mouths to feed, not to mention the snow storm that hit parts of China. Hungry Haitians have forced their President to quit. Even China which traditionally have been heavy handed with dissidents has freed a onganizer of rice protesters. The Phillippino Americans have even taken to sending rice back to their families back in the Phillipines. And don’t forget Africa where genocidal wars are fought because of drought.Why it the rice shortage has not hit America I’m not sure, perhaps its because we still have a decent sized inventory of the product. Or maybe in America we supplement rice with other grains such as wheat and America has much land for bread basket.Worldwide rising food costs are kind of like worldwide inflation of food prices. All curriencies don’t stretch as far relative to the price of food.The first step is for governments to zone land for agriculture. Capacity (nutritional survival) is the key – by filling everybody’sIt may not get any better for years. I can’t quite see how we the richer nations can afford to support the (hungry fellow human beings – where the food crisis are most impact – people straving).We need to:1. Plant all the corn/rice/wheat/potatoes as we can.(The ladder to sustainability: Water, food, shelter and education/jobs).2. Unfortunately we in order to save lives we need to help the hungry eat for a period of time until they are able to work and pay for their food again. The problem is who do you sell or give the food to (criteria – sell to those who can pay the highest price – capitalism versus give food to the most in need).3. To produce such huge crops to feed the world Canada (of which our competitors for farming is Australia – had a drought and forest fires) has escaped any really serious calamities. Canada should plough all the land available. For example the pine beetle dead forest, could be ploughed over and corn grown. It would be foolish to count out Australia though as they are perhaps the most industrious people I have ever seen.I like corn because you have two of the hottest markets 1. bio fuels – clean and becoming more affordable relative to petroleum; 2. food for the hungry…YOU HEARD IT HERE FIRSTPerhaps there will be a balance eventually between a thrid world’s countries’ prices for crops and the rural people willing to work the farms (who may see their labour costs close the gap with factory workers who work near and outside citiy hubs). Is thia communism or captalism…in defense of capitalism resources are being allocated to farmers now that their products are high in demand and can demand a high price.If the price is high enough economic migrants may even leave the factories and go back to working the land.This is assuming there is clean air and water and labour without modern machinery is worth it.It is an idealistic compromise.I have an alternate solution, some of these big developing nations with large lands and cheap labour (perhaps in the future with modern machinery as well)…WHOSE LAND SOIL AND AIR are polluted could grow bio-crops (since a little pollution in fuel may not be as harmful as injestion) eg. into ethanol and then sell; either the dried corn kernels and or ethanol delivered in super tankers to developed countries, and then these developing nations could use the profit they make to buy unpolluted food.On my personal front I am humbly giving up my working income since last week (at least 80% per day) and to the end of this week (inspired by Ghandi) – to donate to our fellow citizens of the World – who aren’t able to meet their basic need for survival.Some people may call me hypocrytical, but I’m trying contribute on my part.God Bless

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