Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Where Will the Food Come From to Satisfy China's Growing Consumption?

Commodities / Agricultural Commodities Apr 12, 2010 - 01:24 PM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleWhile out this week shopping at your favorite food store, do something for one of your grandchildren. Use that fancy cell phone to take a few pictures of those food stores. Be sure to get several of the store front with people entering. With those pictures you may be able to convince  your disbelieving descendants that a time did exist when grocery stores did not have armed guards.


Each day brings the world one day closer to global Agri-Food inadequacy. On one side demand around the world continues to rise as the number of people increases and higher incomes allow those in China and India to buy food on world markets. As we have written many times, China has demonstrated that hunger is not a problem of inadequate Agri-Food. Hunger can be cured by higher incomes that allow consumers to simply buy Agri-Food in world markets. Such is the approach being implemented in China, and they may have the money to outbid many.

Text Box:

In our first chart above is plotted, using the green line and the left axis, China’s consumption of three of the most important grains. Shown is the sum of the corn, wheat, and soybeans consumed by people of China. Light green line is a linear regression, and the tight fit around that trend line should be noted. Historical data for this chart comes from the USDA, and that data was used to project 2011 values.

In the five years of the chart, China’s consumption of these grains will experience an increase of 40 million tons, or about 15%. To help put that quantity in perspective, the increase is greater than the total production of corn, wheat, and soybeans by Canada. Where will the world get another Canada with which to feed China over the next five years? And then, we will need another to feed India in the five years that then follow after.

Red line in that chart, using the right axis, is the percentage of the world’s production of corn, soybeans, and wheat consumed by China. In the Agri-Food price crazy year of 2008 that percentage reached  18.6%. 2009 was, according to the USDA, a great global crop year, and the ratio fell. USDA is now forecasting second year of good luck in the farm fields, and the ratio is expected to fall slightly again. In 2011, the USDA’s black hat of forecasts will probably be out of rabbits, and the ratio will rise back to 18.3%. The forecast difference between China’s share of global consumption of these three grains will be 0.3% shy of the 2008 level, when Agri-Food prices went up dramatically. And finally, note that China has about 20% of the world’s population. What happens to Agri-Food prices when, not if, they get their fair share?         

In the past decade the world got lucky as the increased production of Argentinian and Brazilian farmers prevented the world from being either hungrier or paying more for the Agri-Food. In that decade those farmers increased the acreage growing soybeans or corn by about 15 million acres, or by about a third. In the past five years, the increased production of soybeans by Argentina and Brazil represented about 65% of the increase in global soybean production. In case you are wondering why that matters, every meal you consume every day includes some vegetable oil, one likely made from soybeans.

Text Box:

So much for history, what about the future? The above chart helps to understand the limits of Agri-Food. In the early 1990s, Brazil and Argentina used less than 40% of their combined arable land to produce corn and soybeans. In recent years, almost 70% of the arable land in those two nations was dedicated to producing corn and soybeans. A quite reasonable assumption is that those two nations will need to grow something besides corn and soybeans. Limits to growth in Agri-Food do exist, and they are measured in acres. 

China will feed the nation in the years ahead as it will be generating the income with which to buy the necessary Agri-Food. However, the world does not have another Brazil and Argentina with which to keep Agri-Food prices from rising. And then in a few years, India will be in global Agri-Food markets buying also as incomes rise in that nation. Whether or not Agri-Food prices in the future  will be higher is no longer a relevant question. Rather, how high will Agri-Food prices rise and how will the rest of the world afford the higher prices?

Agri-Food prices, as we have reported many times in these articles, have risen at a rate far faster than the return produced by equity markets. Even with Gold, your portfolio may not be adequate to feed your family in the coming years. To help investors understand the returns generated by Agri-Food commodities, we recently released our quarterly report on the topic, Agri-Food Commodities: An Investment Alternative. You may read that report at this link:

:  http://www.agrifoodvalueview.com/files/Agri-Food_Commodites_An_Investment_Alternative_2010_April.pdf

By Ned W Schmidt CFA, CEBS

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View , a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To receive the most recent issue of this publication, use this link: http://home.att.net/~nwschmidt/Order_AgriValue.html

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules