Modern Day Food Shortages and Apparent Investment Opportunities

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.

More from Meg at The World of Wealth

10 responses to Modern Day Food Shortages and Apparent Investment Opportunities

  1. Meg,
    Magazines thrive on scare headlines. That is how they get people to pick their magazine off the rack rather than someone else’s. Since the US and other countries are in the midst of an “obesity epidemic” (another scare headline), I’m having a little trouble processing the cognitive dissonance.

  2. Sugar-cane ethanol is much more cost effective than Corn ethanol and wont increase the cost of corn. This will be great for the Caribbean nations where sugar cane plants grow well and fast… It would be a great way to help a post-Castro Cuba!Instead of producing sugar, Cuba can produce energy for its own consumption and even maybe export… Too bad the same big players want to force Corn down our gas tanks

  3. Sam,
    True, we should all (Americans) eat less. However, it is important to remember all the fuss over the outdated ‘farm subsidies.’ A government has no higher import than protecting the food source of its citizens. In 2040 agriculture will make today’s oil look like peanuts.

  4. So the world is running out of food, the penguins are catching on fire, the polar bears are drowning, world wide diseases could proliferate to epidemic levels . . . at least there is no asteroid on a crash course with earth yet, that we know of 😉

  5. Plus, if you look at the solar cycle, over the next few years we should have great outputs of food since we’re just ramping up now. So that’s an even better time to buy agriculture . . . and aluminium foil companies, since everyone is going to need a hat soon.

  6. 1 bushel 2 gallons

  7. Actually, the problem is biofuels + a richer third world leading to more meat-based diets. Chinese eat far more meat than they did a few years ago, so more corn is being used to feed hogs, chickens, etc.

    But our glorious Congress isn’t helping any with ethanol subsidies.

  8. Foo,
    In addition to eating more meat, they are also eating more dairy products, with the same results for grain supplies and prices. Of course, corn ethanol is the whipping boy for all our agricultural problems. but I agree about the ethanol subsidies – they need to go.

  9. Check your facts and don’t say rediculous things. Malthusian prophesy will destroy your credability everytime. It’s just wrong.

    “Through research performed at Cornell University, we know that 1 acre of land can yield about 7,110 pounds (3,225 kg) of corn, which can be processed into 328 gallons (1240.61 liters) of ethanol. That is about 26.1 pounds (11.84 kg) of corn per gallon.” from

  10. TXAG – You’re right, I mis-represented that figure. I’d relied on my memory, but the actual quote was “a full tank of gas requires the equivalent of a quarter of a ton of raw foodstuffs, enough to feed one person bread for a year.” Thanks for the correction!