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The Reason Food Prices are Climbing- The Myth of a Shortage

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opednews.com Headlined to H4 5/22/11

Another contributor to the high price of food is MOSAIC. It is a publically traded arm of Cargill the world's largest privately held company. Because it is privately held Cargill's profits and how they are obtained are not public but it's safe to say that Cargill controls much of the world's potash and phosphate two of the main ingredients of chemical fertilizer. Associated Press (2011) reported that Cargill's net earnings in the first quarter of 2011 was up 23 percent from a year ago and the company is on a buying spree and is planning to sell its shares of the highly profitable MOSAIC.

MOSAIC's CEO Jim Prokopanko earned $3,263,890 for the fiscal year ending May 31, 2008. In 2008 Prokopanko got a non-equity incentive bump 96 percent higher than in fiscal 2007 (Kennedy, 2008). In 2009 Prokopanko received a 40 percent increase in compensation. In January, 2010 Prokopanko sold 52,000 shares of MOSAIC for almost $4 million. In 2010 Prokopanko earned $6.26 million in salary, stock and other compensation. MOSAIC has quickly become the darling of Wall Street.

MOSIAC like the Potash Company is largely responsible for the tremendous spike in the price of basic foods.   In April 2008, the joint offshore trading arm for Mosaic and Potash hiked the price of its potash by 40 percent for buyers from Southeast Asia and by 85 percent for those from Latin American. India had to pay 130 percent more than the year before and China was up an astounding 227 percent. (Patridge and Hoffman, 2008).

Seeds

It's not only the cost of fertilizer that is contributing to the high cost of basic foods, it's also the rising price of seeds. Consider agricultural biotech giant Monsanto. They expect to see their profits double by 2012. Monsanto has been buying agriculture companies expecting a so-called worldwide food shortage to continue. But in fact they are planning to profit off soaring prices (Hiralal, 2008) .   Monsanto is another darling of Wall Street and in 2010 "Chief Executive Magazine" named CEO Hugh Grant the "Chief Executive of the Year" (Donlon, 2011).   Chief Executive Magazine seems to have lost its ethical moorings. Monsanto makes its profits selling genetically engineered seeds to farming industries and farmers around the world. Many worry that genetically engineered food will wind up destroying natural or organic foods and some consider it potentially the most harmful invention since the atom bomb. It is the cost of Monsanto's seed that has contributed to the growing price of food. Farmers know that these engineered seeds of corn, wheat, cotton and soybeans stand a better chance of maintaining profitability because they tend to produce more crops per acre and survive under the most difficult weather conditions including drought. So they need these seeds to stay in business. Monsanto refuses to allow farmers to reuse the seed so every year they must purchase new seeds, this plays havoc with farmers in third world countries and significantly contributes to the price of food. (Donlon, 2011).

Other darlings of Wall Street are Archer Daniels Midland and Bunge. Their stocks are soaring as the w orldwide demand for food grows and the price of grain prices continues to remain high.

The Real Reason the Price of Basic Food is Rising

We have already established the price of fertilizer and seeds are major contributors, but what about hoarding? There is widespread belief that hording of wheat, corn, grain and other commodities are occurring but who is doing the hording?   Again we need to look at the villains of Main Street and the poor. Of course hording is just another method executives, hedge fund operatives, and their Wall Street colleagues use to benefit and you can bet their doing it.   While it is difficult to actually catch investors actually hording the question is raised because investment funds are pouring billions into food commodity markets.   The capacity to make millions is clearly an incentive to bet but to ensure they do not lose requires them to engage in price control. This is clearly not the first time investment managers have tried to control the price of a commodity and make a killing. These investors would like Federal regulators to believe that they are speculators and they merely invest of price movement of a commodity and they do not buy or sell a physical commodity.   But they do not disclose how they influence price and how they are guaranteed they will make that killing. The truth of the matter is contrary to their claims they do control the physical commodity it's called "hoarding."

How does one hoard? It's surprisingly easy. Get a silo purchase a commodity before it is seeded. Then at harvest fill the silo with several million tons. If that does not work then load millions of tons of the food commodity onto a giant tanker ship and leave it anchored in a local harbor, keep it there until the price climbs and sell for a major profit. Take some of your profits and build two or three more silos or rent more tankers and do it over again. Of course they do not call it hoarding it's called "controlled inventories." If enough do this they effectively control the price and the price moves in one direction.   How much is being taken off the market and hoarded is unknown without federal oversight. This terrifies commodity hoarders so to keep the Feds off their tail they make certain the price for food in the US rises in small increments and Main Street is kept quite with stories of drought, bio-fuel, population growth and other fabrications.

Why is hording occurring? Look to the Wall Street bankers

Commodity speculators is a rapidly growing investment field and hedge fund managers   disillusioned with the Wall Street market have flocked to trading commodity futures. According to Steward and Waldie (2008) ""hedge funds and other sources of hot money are pouring billions of dollars into commodities to escape sliding stock markets and the credit crunch, putting food stocks further out of poor people's reach."   Steward and Waldies, (2008a) maintain that investment funds now control 50--60% of the wheat traded in the world commodity markets and   that the amount of speculative money in commodities futures like rice or wheat has ballooned from $5 billion in 2000 to $175 billion to 2007 (Stewart and Waldie, 2008).   At this rate by 2014, $350 million will be bet on prices of food commodities. Food will become a commodity treated by speculators the same as gold and precious metals where hoarding is increasingly common.

As we have witnessed with precious metals hording; price inflation results and the investors get rich but this sets off a vicious cycle . Consider copper: If you walk around the Bronx NY you will notice that anything made of copper has disappeared: Drain pipes, gutters, siding, decorations, cupola's, doors, and even wiring. In some areas of the country rising copper prices has prompted thieves to climb poles and cut down live telephone and electrical lines for the valuable copper inside. Throughout the Industrial Midwest abandoned homes are gutted of cooper pipe, not by addicts but by people trying to feed their families. Furthermore we see ample evidence of destruction around the world as antiquities made of precious metals are destroyed. In Egypt men have raided museums looking for metal to melt so they can buy food for their families. We also witness food reaching the level of a precious commodity, thieves are stealing food. According to Neuman (2011) in April 2011 a gang of thieves stole six tractor-loads of tomatoes, one truck of cucumbers and a truckload of frozen meat. Total value: about $300,000.

Ethical Question

This raises the question: Should governments allow food be treated as a commodity? Should speculators be allowed to engage in making money off the price movement of food?   Given the absence of transparency it is impossible to know the quantity of food harvested or needed in the global marketplace. We do not know who is producing what, and how it is being shipped, stored, priced or consumed. What we do know is millions are starving and suffering has increased throughout the world. And, we do know that commodity speculators, hedge fund managers and executives and their stockholders are in the game and getting rich. And, we know that Goldman Sachs is right in the middle of this (Kaufman, 2011). It's one thing to get rich closing US factories, sending jobs overseas, fudging derivatives and getting bailed out, but it's quite another to get rich making food so expensive hundreds of millions of adults and their children no longer have adequate food.

References

Associated Press (2011) Cargill profits rise amid food-price swings. Retrieved 4/13/11 from:http://www.businessweek.com/ap/financialnews/D9MISJJG2.htm

Austen, I. and de la Merced, M.J. (2010) Potash Producer Rejects Bid by BHP Billiton

NY Times Business day. Retrieved from: http://www.nytimes.com/2010/08/18/business/18potash.html

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He has taught in MBA programs for almost 35 years in 2002 he left academe to work for Home Depot where he witnessed the absurdity of corporate life. He is now semiretired and serves on the faculty as an adjunct professor at several institutions. He (more...)
 

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As I understand it, the Commodity Futures Moderniz... by larry on Sunday, May 22, 2011 at 9:48:52 PM
A very nice article. In addition to the Stewart an... by Douglas Aerie on Monday, May 23, 2011 at 7:20:58 AM
Use cow or duck poop instead of megamillion dollar... by Odyseus_97 on Monday, May 23, 2011 at 10:34:41 AM
just follow the money, those who control the food ... by nativenezperce on Thursday, Jun 2, 2011 at 4:50:17 PM
A penny for wheat...and do not hurt the oil...... by Debbie S on Friday, Jun 3, 2011 at 1:30:27 AM
has done more harm to the soil then it has helped,... by nativenezperce on Friday, Jun 3, 2011 at 2:01:40 PM
It is a tragedyI even see neighbors pumping chemic... by william czander on Friday, Jun 3, 2011 at 2:39:00 PM