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Modern Day Food Shortages and Apparent Investment Opportunities
By JLP | March 18, 2008
According to this very interesting MSN Money article entitled “Could We Really Run Out of Food?”, experts warn that the world is “now facing down the barrel of the worst catastrophe of all: famine.”
Seems crazy, right? I mean, I’ve studied about famines in history class, but in this day and age? Seriously? Then again, I’ve also always studied distantly frightening population growth statistics…
In any event, the article points to several facts to bolster its position:
- “Wheat futures prices have tripled since 2004, corn prices have almost tripled since 2005, and soybeans have tripled since 2006.
- Rice prices surged to a 20-year high this week while rice stocks have fallen to their lowest level in 25 years. Countries like Egypt, Vietnam, Russia, Thailand, The Phillipines, Indonesia, Ukraine and Kazakhstan have restricted exports and are warning of civil unrest if the flow of rice doesn’t increase.
- Wheat inventories are at 30-year lows even though world wheat production was actually up 1% last year. In the past year wheat inventories in the EU have dropped to 1 million tons (down from 14 million tons).
- A leading Canadian fertilizer executive told analysts recently that global grain reserves are “precarious,” at just 1.7 months of consumption, down from 3.5 months of reserves as recently as 2000.
- “Now the really bad news is that we might actually have been lucky in the past few years, as global warming has lengthened growing seasons in the American Plains, sometimes called the Saudi Arabia of corn…the U.S. Midwest has enjoyed 17 straight years without significant crop failure, the longest winning streak on record. If this fortunate run ends soon, we’ll likely face a worldwide crisis.”
- Worse, though food prices are already up in America, they haven’t risen as much as feed prices because “manufacturers, processors and retailers such as Wal-Mart Stores have found ways to hold the line by cutting expenses. But they can dam up the flood of food inflation for only so long.”
This situation is different from all previous food shortages and issues. “Until now, food crises in world history were regional concerns that arose from crop failures, war or pests. Once global trade of grains got going in the 19th century in a major way, food shortages in one country were ameliorated by imports. What’s happening now is a lack of supply everywhere at once.”
So who’s to blame? Urbanization has cut the amount of acreage devoted to farming. The United Nations reports that the total area devoted to crops worldwide has stalled to 0.1% annually in the past decade (I’m willing to bet population growth has been higher than that). Population growth in Asia and South America have increased demand for protein (indirectly affecting corn prices because corn is fed to cattle and chicken). Also ethanol production has surged at the worst possible time - and many experts are urging complete suspention of it (after all, it takes 1/4 of a ton of corn to produce a tank of gas - enough to feed a person bread for a year. And it doesn’t even conserve any energy!). And certainly there are many other variables at play as well.
So…buy agriculture stocks now? That’s what the author suggests. It stands to reason that as population inevitably grows, especially as we continue to cure diseases and spread our medical technology across the globe, that demand for food will ever-increase, as will prices. We can technically increase the supply of food, but not very easily or cheaply and not indefinitely. Seems like as sure of a bet as you’ll find today, right?
Also, this also reminds me that demand for and prices of real estate should inevitably grow as well (on average, and over time, of course). More people + no way to increase supply of land = good investment, right?
Well, yes - probably, eventually. But there’s no way to know if these seemingly apparent investment opportunities will pay off in 3 years or in 50 or even 150. Only time will tell.
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