Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
The Inflation Mega-trend and UK House Prices - Housing Market Analysis Trend Forecast 2022 to 2025 - 5th July 22
Gold Price Summer Seasonal Doldrums - 5th July 22
Tame Budgies Having Fun on a Grape Vine - UK Parakeet Easy Training - 5th July 22
Is the US Yield Curve Inversion Broken? - 3rd July 22
New Signs Economic Turmoil Will Prompt Fed to Lose Its Nerve - 3rd July 22
Stagflation With Powell Could Make Gold Price Happy - 3rd July 22
UK Housing Market Analysis, Trend Forecast 2022 to 2025 - Part 2 - 30th June 22
Stock Market Turning the Screws - 30th June 22
How to Ignore Stocks (and why you should) - 30th June 22
Top Tips For Getting The Correct Insurance Option For Your Needs - 30th June 22
Central Banks Plan To Buy More Gold In 2022 - 30th June 22
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
GOLD STOCKS ARE WORSE THAN GOLD - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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