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Crunch Time on the Bread Line

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Message Michael Fox
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Where will you be in the line?  In a column last week, I discussed the forthcoming risk of global famine.  Now the evidence is piling on, and there is every reason to expect - at the very least - astronomical inflation in food prices within the next year.  Most significantly, this problem is not confined to any one region of the world, and the ripple effect is mind-boggling.  Keep in mind that the dollar is falling on the world exchanges, and the food you buy is subject to the fluctuations of the currency exchanges.  Why?  Well, simply because it may be more lucrative for global agricultural corporations to sell to the highest bidder – no matter where they may be.

 

Think about the grocery products you buy that involve grains - and then think again.  Naturally, the first thing that comes to mind is bread (which, by the way, keeps nicely in the freezer, but never the fridge!).  In the United States and Europe, we eat bread from wheat, but in Mexico, the more common equivalent is corn tortillas, and corn is already running short due in a large part to its (mis-) use for E-85 Ethanol production.  Consequently, the Mexican tortilla market is running short and prices are rising for that most basic staple – because American conglomerates are buying up too much of the corn for Ethanol.  The corn shortage is also causing the rapidly increasing prices for eggs and chickens, as they are, traditionally, corn-fed.

 

In Northern Europe, there is a shortage due to weather, of the hops and barley crops.  The shortages in wheat, compounded by barley and hops shortages, will cause soaring prices for beer, vodka and whiskey (the latter two, of course, can keep in storage, if they can stay stored).  The more you think about it, the sooner you realize how corn and wheat shortages will affect the entire food chain – all the way from cocktails to dessert.

  

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The Economist reports that this month, “Food prices also continued to rise. The price of wheat jumped by 25% in just one day after Kazakhstan, a big exporter [world’s 5th largest wheat exporter], moved to impose tariffs on grain leaving the country in an effort to curb inflation at home.”  The Kazakhs were in the position to do this because the bigger exporters, the US being the largest, are running short.

Bloomberg reports that “Volatility in U.S. wheat futures has surged as prices more than doubled in the past year on the Chicago Board of Trade, capped by unprecedented swings yesterday. Prices have been pushed up as the world's farmers have failed to keep pace with rising demand, eroding inventories. The rally fueled food inflation, leading to higher costs for Italian pasta, Japanese noodles, French baguettes and Kellogg Co. cereals.”  Separately, and more specifically, they reported a veritable panic on the commodities trading floors, as “on the Minneapolis Grain Exchange, wheat for May delivery advanced $1.35, or 7.9 percent, to $18.4325 a bushel. The March contract, which has no limit because it is the closest to delivery, rose as high as $24.26 a bushel, after yesterday becoming the first U.S. wheat contract to top $20 a bushel.”  Last October, was trading at about $5.50 a bushel on the Minneapolis exchange.

Things have gotten so out of control that it was widely reported that this week, a “rogue employee” of a Bermuda-based firm (always pin a massive failure on one disposable member of the “team”) lost $141.5 million betting on the wheat market.

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And how did this all happen?  It’s not due to natural shortages.  It is entirely to bad planning and gross mismanagement that goes all the way up to the Congress and President of the United States, as well as the last president of the United States, who enabled this crackpot plan to use corn – the least effective of the ethanol base grains – for fuel, even though its production takes more polluting coal-fired electricity to run the stills to produce can justify the clean-burning end-use fuel.  This madness was planned, and courtesy of our agricultural giants, our automakers pushing unconscionably low-mileage “flex-fuel” E-85 cars, and an economic model that puts the potential for exporting domestically needed grain for greater profits from foreign sale, we will be paying twice as much at the grocery store a year from now.  Twice as much. 

I have recommended growing food in your garden or on your balcony.  You’ll need it, whereas you certainly don’t need any more bushes in your backyard, nor do we (oh, the punchline is just too obvious…)

 

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Michael Fox is a writer and economist based in Los Angeles. He has been a corporate controller, professor, and small business entrepreneur. After a life-altering accident, he spent five years learning more about medicine and the healthcare (more...)
 
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