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Food Is Soaring in Price - Why It Will Continue PDF Print E-mail
Written by Richard Mills - Ahead of the Herd   
Friday, 06 June 2014 11:46
Been There Done That

If you look at the many charts and read many of the articles being published today you couldn’t be faulted for thinking the rise in food prices is a fairly recent phenomena.

image002

The Food and Agriculture Organization (FAO) of the United Nations publishes the FAO Food Price Index, a measure of the monthly change in international prices of a basket of food commodities.

In 2002 FAO’s Food Price Index stood at 89.6, in May of 2014 it’s at 207.8. In 2002 meat was 89.9, dairy 80.9 and cereals 93.7. In May 2014 the three individual index’s stood at:

  • Meat 189.1
  • Dairy 238.9
  • Cereals 204.4

The International Monetary Fund (IMF) recently published its Index of Primary Commodity Prices.

image004

The reality is food has been soaring in price for decades. Look at this eye popping chart from the St. Louis Fed.

image006

The next time you are in the supermarket play this game - compare today’s prices for the following items to 1970’s prices: 

  • Apples - .15lb
  • Ham - $2.29lb
  • Campbells Tomato Soup - .10
  • Crest Toothpaste - .77
  • Folgers Coffee - $1.90lb
  • Turkey - .43lb
  • Ground Round - .79lb
  • Potatoes - .98 for 10lb
  • Large Eggs - .59 dozen
  • Pork Chops - .59lb
  • Sliced bread - .16 loaf
  • Sugar - .39 5lb
  • Rump Roast - $1.69lb
  • Bacon - $1.29lb

Experts and industry insiders often agree about some of the basic underlying causes of the recent jump in prices - drought, disease, climate change, loss of arable land and soaring input costs, such as diesel and fertilizers. It’s pretty obvious they all have an impact on the price of what eventually reach’s your supermarket shelves.

But most pundits don’t get it, fortunately we at ahead of the herd do - in the agricultural industry today, as it has been for the past 70 some years, it’s all about supply and demand.

And supply isn’t keeping up with demand. Food prices have been on an upwards march for a very long time. That’s what happens when demand outpaces supply.

Why is demand outpacing supply?

  1. Growing global population – The global population is increasing by over 75 million people a year. Impacts from weather and natural disasters will ebb and flow but population growth is a constant driver of demand.  
  2. Climbing the protein ladder – Many people in emerging/developing economies have increasing discretionary income, they are becoming richer. As income increases people move up the protein ladder, from staples such as rice they climb the ladder and demand more protein in the form of meat and dairy.

Food prices will have to climb ever higher over the coming decades as billions more people are born further increasing demand and stretching the Earth’s limited resources.

By 2050, the world's population is expected to reach around nine billion -maximum projections range up to 10.6 billion. By the mid 2060s it’s possible that as many as 11.4 billion people will inhabit this planet.

The term Green Revolution refers to a series of research, development, and technology transfers (the shift to high-yielding rice, wheat and corn varieties that are dependent on irrigation and heavy fertilization) that happened between the 1940s and the late 1960s. 

The initiatives involved:

  • Development of high yielding varieties of cereal grains
  • Expansion of irrigation infrastructure
  • Modernization of management techniques
  • Mechanization
  • Distribution of hybridized seeds, synthetic fertilizers, and pesticides to farmers

All these new technologies increased global agriculture production with the full effects starting to be felt in the 1960s.

The Green Revolution's use of hybrid seeds, irrigation, chemical fertilizers, pesticides, fossil fuels, farm machinery, and high-tech growing and processing systems combined to greatly increase agriculture yields. The  Green Revolution is responsible for feeding billions - and likely enabling the birth of billions more people.

“When wheat is ripening properly, when the wind is blowing across the field, you can hear the beards of the wheat rubbing together. They sound like the pine needles in a forest. It is a sweet, whispering music that once you hear, you never forget.” Norman Borlaug, father of the Green Revolution

Cereal production more than doubled in developing nations - yields of rice, maize, and wheat increased steadily. Between 1950 and 1984 world grain production increased by over 250% - and the world added a couple more billion people to the dinner table.

Many experts believe technological advancements in agriculture, energy & water use, manufacturing, disease control, fertilizers, information management and transportation will always keep crop production ahead of the population growth curve.

That’s a lot to ask as over the next fifty years we add another 4 billion people to the world’s population. Global demand for food will increase almost 70% if population growth predictions are correct.

What many of these ‘experts’ don’t get is the Green Revolution’s reality. It wasn’t about the fertilizers, pesticides or irrigation etc. These were all secondary players, add on technologies or basically derivatives to the main technology – dwarfing. By breeding plants to invest less energy in producing stems more energy goes to grain.

“In 1953, Dr. Borlaug began working with a wheat strain containing an unusual gene. It had the effect of shrinking the wheat plant, creating a stubby, compact variety. Yet crucially, the seed heads did not shrink, meaning a small plant could still produce a large amount of wheat.

Dr. Borlaug and his team transferred the gene into tropical wheats. When high fertilizer levels were applied to these new “semidwarf” plants, the results were nothing short of astonishing.

The plants would produce enormous heads of grain, yet their stiff, short bodies could support the weight without falling over. On the same amount of land, wheat output could be tripled or quadrupled. Later, the idea was applied to rice, the staple crop for nearly half the world’s population, with yields jumping several-fold compared with some traditional varieties.

This strange principle of increasing yields by shrinking plants was the central insight of the Green Revolution, and its impact was enormous.” Justin Gillis,Norman Borlaug, Plant Scientist Who Fought Famine, Dies at 95

Conclusion

Well, we’ve been there done that dwarfing thing. So what’s next? What’s going to save us this time round the mulberry bush? Nada, zilch, nothing, zip. We’ll have to keep dumping increasing amounts of fertilizer on a decreasing arable land base while trying to increase irrigation using our rapidly depleting fresh water aquifers. All the while suffering from the effects of climate change, rising transport costs and increasing geo-political risks.

Already over one billion people, or a seventh of the world’s population, goes to bed hungry each night.

Somewhere in the world someone starves to death every 3.6 seconds - most of the names on starvation’s role call are children under the age of five.

Rising agricultural yields have always outpaced population growth, perhaps today that is no longer the case. ‘Been there, done that’ should be on all our radar screens. It’s definitely on mine. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills


Richard lives with his family on a 160 acre ranch in northern British Columbia. He invests in the resource and biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com. His articles have been published on over 400 websites, including:

WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com and the Association of Mining Analysts.

Please visit  www.aheadoftheherd.com

If you are interested in advertising on Richard’s site please contact him for more information, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 ***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified.

Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

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Deflation: Good or bad for the euro? A contrast with Japan… PDF Print E-mail
Written by Jack Crooks - Currency Currents   
Friday, 06 June 2014 08:35

BlackSwan2Quotable
Be near me when my light is low,
When the blood creeps, and the nerves prick
And tingle; and the heart is sick,
And all the wheels of Being slow....

                                         Tennyson

 

The Eurozone movie we’ve been watching is starting to look eerily familiar.
 
Of course, I am referring to the similarity between the economic and monetary path in the Eurozone to that of Japan during its many years of deflation.  Mr. Draghi has strenuously argued the Eurozone is not at all like Japan and inflation will indeed pick up, especially now given the ECB’s decision to move to negative interest rates on bank deposits and lowered benchmark rates.
 
But are deflationary pressures in the Eurozone really all about money? 
 
I don’t think so.  I think the problems are structural and go much deeper than merely creating more liquidity.  But what I am most concerned about is this: How will Europe’s single currency react if the zone is following down the path Japan has blazed?

Read the full issue here

Jack Crooks
President, Black Swan Capital

 
Now This Is A Problem! PDF Print E-mail
Written by Michael Campbell   
Friday, 06 June 2014 07:58

Two full work weeks per year in traffic delays! 

A recent study says that if your Vancouver commute is only 30 minutes, that over the course of a year you will spend a total 87 hours in traffic delays......

 
This Will End In Disaster - It’s Just A Matter Of Time PDF Print E-mail
Written by John Ing via King World News   
Friday, 06 June 2014 07:46

shapeimage 22Today Canadian legend John Ing warned King World News that the moves by the ECB and other central planners will end in disaster.  Ing, who has been in the business for 43 years, said it is just a matter of time before disaster strikes, and he also spoke about key events in a number of other markets:

Ing:  "Thursday was what I consider a turnaround day as Draghi dropped European rates to negative territory"

Continue reading the John Ing interview HERE

 
How Much More Upside Is There? PDF Print E-mail
Written by Tyler Durden - ZeroHedge   
Friday, 06 June 2014 07:38

For 5 years the correlation between the expansion of the Federal Reserve's balance sheet and the growth of the S&P 500 has risen dramatically. Since QE3 was unveiled, the correlation is converging on 1 which of course is just happy coincidence and nothing to do with the free and easy flow of liquidity that month after month of Fed largesse has created. The problem is we now know that the hurdles to a Fed un-Taper are very high and so we can extrapolate the end-point for the Fed's balance sheet and where stocks would trade at that point.The S&P 500's recent exuberance has priced in the total expansion of the Fed's balance sheet to the end of the taper, so how much more upside is there?

Coincidence...?

20140606 fed1 0

Perhaps not...continue reading HERE

 

 
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Tyler Bollhorn
21 July 2014 ~ Michael Campbell's Commentary Service

Have you ever wondered why companies with good businesses often fail to perform well while stocks that trade at prices not justifiable by...   Read more...

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