Food prices at world record, fueling political instability
February 7, 2011 9:35 AM Subscribe
Rising food prices and a shortage of critical crops is fueling political instability in numerous regions worldwide. Food prices hit a record high in January, for the seventh consecutive month, the food price index was up 3.4% from December to the highest level since the UN started measuring food prices in 1990. In response some countries are stockpiling ("hoarding") making the problem worse. "If people don't have enough to eat they only have three options: they can revolt, they can migrate or they can die."
they would have less trouble if they just went for the american solution, which is to quietly reduce the food content by about 3% every two months without changing the price; the bonus is that down the line when things are better, they can go back to the old level and advertise it as "new: larger size!"
posted by fallacy of the beard at 9:43 AM on February 7, 2011 [11 favorites]
posted by fallacy of the beard at 9:43 AM on February 7, 2011 [11 favorites]
I guess the idea is, if people are starving, the government is doing something wrong. Revolting is one way to communicate that.
posted by Deathalicious at 9:45 AM on February 7, 2011
posted by Deathalicious at 9:45 AM on February 7, 2011
but how exactly does revolting get anyone more food? Because the rioters kill people and take their feed?
Basically. Remember, it's rich people who can afford to buy huge amounts of food when it's cheap, while poor people can only buy the amount they need at the time. So when times get really bad, you get a revolution of the have-nots against the haves, quite literally.
posted by Faint of Butt at 9:45 AM on February 7, 2011
Basically. Remember, it's rich people who can afford to buy huge amounts of food when it's cheap, while poor people can only buy the amount they need at the time. So when times get really bad, you get a revolution of the have-nots against the haves, quite literally.
posted by Faint of Butt at 9:45 AM on February 7, 2011
mmm . . . tasty, tasty, rich people.
posted by Curious Artificer at 9:46 AM on February 7, 2011 [1 favorite]
posted by Curious Artificer at 9:46 AM on February 7, 2011 [1 favorite]
which is to quietly reduce the food content by about 3% every two months
Otherwise known as invisible inflation. Watery soup!
posted by Baby_Balrog at 9:48 AM on February 7, 2011
Otherwise known as invisible inflation. Watery soup!
posted by Baby_Balrog at 9:48 AM on February 7, 2011
With rising demand for oil from China and India and the increasing difficulty of producing it, the price of oil is going to keep going up. Which means that food prices will go up due to the reliance of much of the world's food system on oil. It also means a higher demand for biofuels, which in turn will further drive up the cost of commodity grains. I don't see the situation getting any better any time soon.
posted by parudox at 9:59 AM on February 7, 2011 [3 favorites]
posted by parudox at 9:59 AM on February 7, 2011 [3 favorites]
Some of you sound a little "let them eat cake"-y... Water scarcity, unequal distribution, climate change, biofuels, poor land use and poor economic diversity are all political problems with political solutions. Of course, the countries that have the most influence are the ones with the most bread and circuses to placate so "dying" is still the most likely outcome for the most affected.
posted by Skwirl at 10:01 AM on February 7, 2011 [5 favorites]
posted by Skwirl at 10:01 AM on February 7, 2011 [5 favorites]
Watery soup!
or, in industry terms, 'now with 20% more moisture!'
a friend noticed this with a brand of pasta meals. the chicken content went down really gradually, every few months, til one day the packaging proclaimed 'now cheesier!', which reflected a higher ratio of cheese:other stuff.
posted by fallacy of the beard at 10:02 AM on February 7, 2011 [1 favorite]
or, in industry terms, 'now with 20% more moisture!'
a friend noticed this with a brand of pasta meals. the chicken content went down really gradually, every few months, til one day the packaging proclaimed 'now cheesier!', which reflected a higher ratio of cheese:other stuff.
posted by fallacy of the beard at 10:02 AM on February 7, 2011 [1 favorite]
I guess the idea is, if people are starving, the government is doing something wrong.
I believe this is a symptom of global monetary disorder. There's very little that small countries can do about this, unfortunately. The large countries are injecting liquidity like crazy. Mostly it's coming from the Fed, and then other large countries step in to maintain currency parity, by buying dollars and selling their own currency. They import our inflation, more or less. China and Japan are the two biggest players here.
Whether or not this is true inflation or a speculative bubble is hard to tell, but both scenarios are driven by excess liquidity. The speculative community is completely married to the banking system; without the endless floods of nearly free money, they'd have a much harder time getting sufficient leverage to move global commodity prices sharply. Whether it's a supply/demand problem (too much currency, too little food), or a purely speculative one (too much leverage supported by the central banking systems), it's still caused by monetary abuse.
The poor countries have a rough choice. They can let their currency appreciate, which keeps food more reasonably priced, but increases the cost of goods they export, hurting their economy. Or, they can try to maintain currency parity against the torrent of dollars, driving up commodity prices, like food. Both scenarios are awful; high food prices cause people to starve, but so do job losses.
This is, I believe, the other side of the bailout coin, and it's going to get a lot worse, probably in waves. Crises like this will erupt, so they'll try to slow down or stop injecting liquidity, but then the First World economies will start to collapse from excess debt, so they'll resume the game of issuing new debt to try to make the old debt look good. I suspect you'll probably see endless arguments about whether we're deflating or inflating, because we're under pressure from both ends -- the bad debt is trying to evaporate, and the central banks are trying to keep the Ponzi scheme going.
Inflation is one of the worst sins of central banking. It loads whatever problem they're trying to solve directly on the people least able to bear it, the poor. They are, for the most part, financially defenseless, unable to protect themselves in any meaningful way.
There is an enormous difference between getting along on 10% fewer luxuries and 10% fewer calories.
posted by Malor at 10:15 AM on February 7, 2011 [16 favorites]
I believe this is a symptom of global monetary disorder. There's very little that small countries can do about this, unfortunately. The large countries are injecting liquidity like crazy. Mostly it's coming from the Fed, and then other large countries step in to maintain currency parity, by buying dollars and selling their own currency. They import our inflation, more or less. China and Japan are the two biggest players here.
Whether or not this is true inflation or a speculative bubble is hard to tell, but both scenarios are driven by excess liquidity. The speculative community is completely married to the banking system; without the endless floods of nearly free money, they'd have a much harder time getting sufficient leverage to move global commodity prices sharply. Whether it's a supply/demand problem (too much currency, too little food), or a purely speculative one (too much leverage supported by the central banking systems), it's still caused by monetary abuse.
The poor countries have a rough choice. They can let their currency appreciate, which keeps food more reasonably priced, but increases the cost of goods they export, hurting their economy. Or, they can try to maintain currency parity against the torrent of dollars, driving up commodity prices, like food. Both scenarios are awful; high food prices cause people to starve, but so do job losses.
This is, I believe, the other side of the bailout coin, and it's going to get a lot worse, probably in waves. Crises like this will erupt, so they'll try to slow down or stop injecting liquidity, but then the First World economies will start to collapse from excess debt, so they'll resume the game of issuing new debt to try to make the old debt look good. I suspect you'll probably see endless arguments about whether we're deflating or inflating, because we're under pressure from both ends -- the bad debt is trying to evaporate, and the central banks are trying to keep the Ponzi scheme going.
Inflation is one of the worst sins of central banking. It loads whatever problem they're trying to solve directly on the people least able to bear it, the poor. They are, for the most part, financially defenseless, unable to protect themselves in any meaningful way.
There is an enormous difference between getting along on 10% fewer luxuries and 10% fewer calories.
posted by Malor at 10:15 AM on February 7, 2011 [16 favorites]
Yes, world food prices are higher because of speculation: "World food prices have become highly politicised. Two views are battling it out. First up: the supply-siders, such as Paul Krugman and Ben Bernanke, who claim that prices are up because of global warming, declining harvests and world population growth. Then, there is everyone else, who claim that it is the fault of speculators."
There's a non-frivolous case to be made that we are being done in by the financial overlords again. Well... by "we," I guess I mean "poor saps in third world countries," for the most part.
posted by rkent at 10:27 AM on February 7, 2011 [1 favorite]
There's a non-frivolous case to be made that we are being done in by the financial overlords again. Well... by "we," I guess I mean "poor saps in third world countries," for the most part.
posted by rkent at 10:27 AM on February 7, 2011 [1 favorite]
"If people don't have enough to eat they only have three options: they can revolt, they can migrate or they can die."
there's a fourth choice - their leaders can start a war with their cooperation and depopulate the region that way
it's horrible, but history shows us that this does happen
posted by pyramid termite at 10:35 AM on February 7, 2011
there's a fourth choice - their leaders can start a war with their cooperation and depopulate the region that way
it's horrible, but history shows us that this does happen
posted by pyramid termite at 10:35 AM on February 7, 2011
rkent, from your link:
"In other words, can a 5 percent reduction in supply generate the following price movements? Wheat prices are up about 50 percent in six months. The supply decline during that period was 0.1 percent. However, the anticipated decline in supply for this year is over 5 percent. That sounds a lot like speculation. Buy now on the expectation of higher prices in the future."
To me, that sounds a lot like the markets were rationing food then in anticipation of an predictable oncoming shortage. The rate of change can be explained by the relative inelasticity of demand. I don't see how one leaps from normal supply and demand to zomg inflation and speculation.
posted by pwnguin at 10:39 AM on February 7, 2011
"In other words, can a 5 percent reduction in supply generate the following price movements? Wheat prices are up about 50 percent in six months. The supply decline during that period was 0.1 percent. However, the anticipated decline in supply for this year is over 5 percent. That sounds a lot like speculation. Buy now on the expectation of higher prices in the future."
To me, that sounds a lot like the markets were rationing food then in anticipation of an predictable oncoming shortage. The rate of change can be explained by the relative inelasticity of demand. I don't see how one leaps from normal supply and demand to zomg inflation and speculation.
posted by pwnguin at 10:39 AM on February 7, 2011
rkent - my admittedly shaky understanding of commodities speculation, at least in the US, is that rules were very much loosened at some point in the 90s. There was a PBS documentary on Brooksley Born that talked about that, and also the derivatives market. So the problem is not merely excess liquidity but also the deregulation that allows rampant speculation on commodities.
posted by fleetmouse at 10:45 AM on February 7, 2011
posted by fleetmouse at 10:45 AM on February 7, 2011
I would assume that the new fungibility between food and fuel, in the form of corn, sugarcane, soybean-based biofuels, must also contribute to rising food prices.
posted by ofthestrait at 10:48 AM on February 7, 2011 [1 favorite]
posted by ofthestrait at 10:48 AM on February 7, 2011 [1 favorite]
Earl Butz could totally fix this in a sustainable and healthy manner.
posted by mccarty.tim at 10:49 AM on February 7, 2011 [2 favorites]
posted by mccarty.tim at 10:49 AM on February 7, 2011 [2 favorites]
Russia has banned exports of wheat in response to the poor harvests. The fourth largest exporter took all their wheat off the market for a year.
A lot of countries are going to be facing this dilemma if prices keep rising, do they take the economic and political hit at home from rising food prices or do they export it by erecting trade barriers to depress the price of wheat in their local markets while reducing supply and increasing prices abroad?
posted by Grimgrin at 10:50 AM on February 7, 2011 [2 favorites]
A lot of countries are going to be facing this dilemma if prices keep rising, do they take the economic and political hit at home from rising food prices or do they export it by erecting trade barriers to depress the price of wheat in their local markets while reducing supply and increasing prices abroad?
posted by Grimgrin at 10:50 AM on February 7, 2011 [2 favorites]
"these figures not adjusted for inflation"
Do that first, and then lets have this conversation.
posted by ZaneJ. at 10:53 AM on February 7, 2011
Do that first, and then lets have this conversation.
posted by ZaneJ. at 10:53 AM on February 7, 2011
Related in the news: Einstein was right - honey bee collapse threatens global food security
posted by nickyskye at 10:57 AM on February 7, 2011 [1 favorite]
posted by nickyskye at 10:57 AM on February 7, 2011 [1 favorite]
Earl Butz could totally fix this in a sustainable and healthy manner.
I don't believe loose shoes are traditional wardrobe - sandals are what is worn if Fox News is to be believed.
posted by rough ashlar at 11:02 AM on February 7, 2011
I don't believe loose shoes are traditional wardrobe - sandals are what is worn if Fox News is to be believed.
posted by rough ashlar at 11:02 AM on February 7, 2011
To make matters even worse/weirder, take a look at what the Baltic Dry has been doing lately. That index tracks all the major bulks (grains but also coal, iron ore, etc.), but I have other proprietary ones that track mostly just grains (in particular, Handymax indices).
What this means is that shipping rates have again collapsed despite the price of the commodities they are shipping going up. In part, this is due to overtonnage - people built a lot of ships on spec in the mid 2000s boom times - but this is too extreme a drop for just overtonnage to be the principal cause.
tl;dr: shipping prices don't get this far out of synch with commodities prices without some underlying and very strange thing happening. I wish someone could tell me what that strange thing is.
posted by digitalprimate at 11:05 AM on February 7, 2011 [1 favorite]
What this means is that shipping rates have again collapsed despite the price of the commodities they are shipping going up. In part, this is due to overtonnage - people built a lot of ships on spec in the mid 2000s boom times - but this is too extreme a drop for just overtonnage to be the principal cause.
tl;dr: shipping prices don't get this far out of synch with commodities prices without some underlying and very strange thing happening. I wish someone could tell me what that strange thing is.
posted by digitalprimate at 11:05 AM on February 7, 2011 [1 favorite]
> >"these figures not adjusted for inflation"
> Do that first, and then lets have this conversation.
Global food prices were up 25% in 2010 and 3% in a single month (January). Egypt's inflation rate, for example, is somewhere around 10% annually.
someone could tell me what that strange thing is.
If commodities are being bought as investments (speculation), and not for end-use consumption, would that cause a drop in shipments?
posted by stbalbach at 11:11 AM on February 7, 2011
> Do that first, and then lets have this conversation.
Global food prices were up 25% in 2010 and 3% in a single month (January). Egypt's inflation rate, for example, is somewhere around 10% annually.
someone could tell me what that strange thing is.
If commodities are being bought as investments (speculation), and not for end-use consumption, would that cause a drop in shipments?
posted by stbalbach at 11:11 AM on February 7, 2011
To make matters even worse/weirder, take a look at what the Baltic Dry has been doing lately.
Yeah, I have been puzzling over that as well, ever since I took a bath on shipping a while back. There seemed to be a widespread expectation -- at least that I saw -- that the shipping industry would rebound as commodity prices recovered. But it basically hasn't.
The obvious answer seems to be that commodity prices have increased, but there really isn't all that much of them being moved around. Which is what you'd expect with all the QE; the danger (it seems to me) is using, or allowing politicians to use, higher commodity prices as a sign of a recovering economy.
posted by Kadin2048 at 11:31 AM on February 7, 2011
Yeah, I have been puzzling over that as well, ever since I took a bath on shipping a while back. There seemed to be a widespread expectation -- at least that I saw -- that the shipping industry would rebound as commodity prices recovered. But it basically hasn't.
The obvious answer seems to be that commodity prices have increased, but there really isn't all that much of them being moved around. Which is what you'd expect with all the QE; the danger (it seems to me) is using, or allowing politicians to use, higher commodity prices as a sign of a recovering economy.
posted by Kadin2048 at 11:31 AM on February 7, 2011
("hoarding") making the problem worse.
Is it "hording" when your government asks you to do such?
Secretary Leavitt said: "When you go to the store and buy three cans of tuna fish, buy a fourth and put it under the bed."
How about a religious belief?
Mormon food calculator
The seven good cows are seven years; and the seven good ears are seven years: the dream is one.
Used to be a time when "policy" was a 7 year grain supply. For the US of A 1996 farm bill eliminated the government’s grain reserves as well as the Farmer Owned Reserve
Some may not remember 2007 food price spike. But there was one.
Lester Brown The rule of thumb is that world grain reserves should not drop below 70 days of consumption Now lets see ... Aug 12th 2010 - 72 day reserve Alas, I can't find a current X day grain reserve statement but note a drop of 1 million ton drop in grain shipment for 2011 in the Grain Market Report 407 from the International Grains Council.
A "reaction" to "hoarding" or observation the grain reserve is under 70 days?
Meanwhile China is spending its US Federal Reserve Notes on US grains pushing up corn prices.
posted by rough ashlar at 11:34 AM on February 7, 2011
Is it "hording" when your government asks you to do such?
Secretary Leavitt said: "When you go to the store and buy three cans of tuna fish, buy a fourth and put it under the bed."
How about a religious belief?
Mormon food calculator
The seven good cows are seven years; and the seven good ears are seven years: the dream is one.
Used to be a time when "policy" was a 7 year grain supply. For the US of A 1996 farm bill eliminated the government’s grain reserves as well as the Farmer Owned Reserve
Some may not remember 2007 food price spike. But there was one.
Lester Brown The rule of thumb is that world grain reserves should not drop below 70 days of consumption Now lets see ... Aug 12th 2010 - 72 day reserve Alas, I can't find a current X day grain reserve statement but note a drop of 1 million ton drop in grain shipment for 2011 in the Grain Market Report 407 from the International Grains Council.
A "reaction" to "hoarding" or observation the grain reserve is under 70 days?
Meanwhile China is spending its US Federal Reserve Notes on US grains pushing up corn prices.
posted by rough ashlar at 11:34 AM on February 7, 2011
I have other proprietary ones .... very strange thing happening. I wish someone could tell me what that strange thing is.
You don't wanna share - why should the Blue give ya the Clue?
posted by rough ashlar at 11:36 AM on February 7, 2011
You don't wanna share - why should the Blue give ya the Clue?
posted by rough ashlar at 11:36 AM on February 7, 2011
First up: the supply-siders, such as Paul Krugman and Ben Bernanke
Errr, any blog that conflates Keynesian economic theory with Laffer/Reagan voodoo economics is clearly not worth linking, but thanks for the contribution. As others have noted, a 5% drop in grain production in the face of increasing world population, given grain's price inelasticity, confounded with biofuels & Russia's export man is all the explanation you need for a massive rise in the cost of staples.
Thanks to peak oil and climate change, this is a problem which isn't going away anytime soon, and will demand a new green revolution to decouple our agricultural methods from fossil fuels if we want to sustain current population trends.
posted by mek at 11:47 AM on February 7, 2011 [1 favorite]
Errr, any blog that conflates Keynesian economic theory with Laffer/Reagan voodoo economics is clearly not worth linking, but thanks for the contribution. As others have noted, a 5% drop in grain production in the face of increasing world population, given grain's price inelasticity, confounded with biofuels & Russia's export man is all the explanation you need for a massive rise in the cost of staples.
Thanks to peak oil and climate change, this is a problem which isn't going away anytime soon, and will demand a new green revolution to decouple our agricultural methods from fossil fuels if we want to sustain current population trends.
posted by mek at 11:47 AM on February 7, 2011 [1 favorite]
Billions of dollars are being made by investors in a speculative "food bubble" that's created record food prices, starving millions and destabilising countries. People Die From Hunger While Banks Make a Killing on Food.
posted by adamvasco at 1:09 PM on February 7, 2011
posted by adamvasco at 1:09 PM on February 7, 2011
Half of Americans don't believe in climate change and the other half don't think the national debt is a problem. At this point I suspect this problem is going to be ignored until bread is $10 a loaf.
posted by Avenger at 1:17 PM on February 7, 2011
posted by Avenger at 1:17 PM on February 7, 2011
At this point I suspect this problem is going to be ignored until bread is $10 a loaf.
That Whole Foods can easily sell a $10 load of bread indicates exactly how much Americans will ever care about this problem, which is not at all.
In the worse case both the US and Canada shut down wheat exports and continue to enjoy life.
posted by GuyZero at 1:28 PM on February 7, 2011
That Whole Foods can easily sell a $10 load of bread indicates exactly how much Americans will ever care about this problem, which is not at all.
In the worse case both the US and Canada shut down wheat exports and continue to enjoy life.
posted by GuyZero at 1:28 PM on February 7, 2011
nations have gone to war for less
posted by Shit Parade at 1:33 PM on February 7, 2011
posted by Shit Parade at 1:33 PM on February 7, 2011
That Whole Foods can easily sell a $10 load of bread indicates exactly how much Americans will ever care about this problem, which is not at all.
Don't make the mistake of thinking the Whole Foods foodie who will casually plunk-down $10 for a loaf of crusty artisan umpti-grain peasant bread is anything like the shopper who has to buy the jumbo loaf of Sunbeam white for 95-cents at their local Lo-Bux MegaMart.
posted by Thorzdad at 1:43 PM on February 7, 2011 [3 favorites]
Don't make the mistake of thinking the Whole Foods foodie who will casually plunk-down $10 for a loaf of crusty artisan umpti-grain peasant bread is anything like the shopper who has to buy the jumbo loaf of Sunbeam white for 95-cents at their local Lo-Bux MegaMart.
posted by Thorzdad at 1:43 PM on February 7, 2011 [3 favorites]
I'll speculate here:
Food prices are rising because there is less food on the market (due to production shortfalls, hoarding, speculative diversion, whatever). Less food on the market means less food to ship.
As demand for shipping drops, shipping prices drop. Hence BDI goes down.
I think some economists were looking at commodities demand in general - that as demand went up, prices would rise, and more product would be shipped in order to accommodate increased demand. Looking at it backwards, rising commodities prices would indicate a healthy increase in demand from recovering economies.
We may have crossed some threshold where prices have simply exceeded the ability of some buyers to pay at all. Now they face famine, and those who can afford to eat are paying higher prices.
The Food Wars have been a staple of science fiction for years. However, as human population grows, and energy, food, and water resources are limited, as is distribution capacity, it's basically unavoidable. I don't think we've reached the carrying capacity of the planet - but as we approach that point, otherwise normal variations in our ability to produce and distribute food will have progressively greater impacts on the food economy.
posted by Xoebe at 2:01 PM on February 7, 2011
Food prices are rising because there is less food on the market (due to production shortfalls, hoarding, speculative diversion, whatever). Less food on the market means less food to ship.
As demand for shipping drops, shipping prices drop. Hence BDI goes down.
I think some economists were looking at commodities demand in general - that as demand went up, prices would rise, and more product would be shipped in order to accommodate increased demand. Looking at it backwards, rising commodities prices would indicate a healthy increase in demand from recovering economies.
We may have crossed some threshold where prices have simply exceeded the ability of some buyers to pay at all. Now they face famine, and those who can afford to eat are paying higher prices.
The Food Wars have been a staple of science fiction for years. However, as human population grows, and energy, food, and water resources are limited, as is distribution capacity, it's basically unavoidable. I don't think we've reached the carrying capacity of the planet - but as we approach that point, otherwise normal variations in our ability to produce and distribute food will have progressively greater impacts on the food economy.
posted by Xoebe at 2:01 PM on February 7, 2011
I do nearly all of the shopping for my household, and while I don't keep strict track of things, it's been pretty hard to ignore what's been happening in Japan. The summer was one of the hottest on record, and a lot of crops suffered for it. The measely handful of green beans that used to sell for 198 yen for, say, roughly 15 green beans, haven't gone below 298 yen this year. The standard price for one head of lettuce is up around 300 yen at nearly all of the supermarkets I regularly use, from roughly 150 yen in years before. And most recently? Chicken breast prices are almost double what they were, even when shopping at the cheapest stores. I could, about three months ago, regularly find boneless, skinless breast meat (the unloved step-child of the chicken family in Japan) for 48 yen for 100 grams. Even the rock bottom cheapest store I go to has it at 78yen/100g now. Egg prices have risen, as have fruit and milk. Not to mention the full on national butter shortage a couple years back (literally, no butter on shelves for several months). From my small corner of a small part of the world, shit isn't looking so good.
posted by Ghidorah at 2:21 PM on February 7, 2011 [1 favorite]
posted by Ghidorah at 2:21 PM on February 7, 2011 [1 favorite]
First up: the supply-siders, such as Paul Krugman and Ben Bernanke, who claim that prices are up because of global warming, declining harvests and world population growth.
This is crazypants, as is the rest of that blog.
What this means is that shipping rates have again collapsed despite the price of the commodities they are shipping going up.
Not necessarily. If supply is reduced due to external factors (weather etc.) then prices go up, fewer orders are filled, and there is less demand for shipping. Grain and shipping are complimentary. The price of shipping as reflected by BDI reflects demand for shipping, not changes in the price of the cargo.
posted by anigbrowl at 2:40 PM on February 7, 2011 [1 favorite]
This is crazypants, as is the rest of that blog.
What this means is that shipping rates have again collapsed despite the price of the commodities they are shipping going up.
Not necessarily. If supply is reduced due to external factors (weather etc.) then prices go up, fewer orders are filled, and there is less demand for shipping. Grain and shipping are complimentary. The price of shipping as reflected by BDI reflects demand for shipping, not changes in the price of the cargo.
posted by anigbrowl at 2:40 PM on February 7, 2011 [1 favorite]
stbalbach: "If commodities are being bought as investments (speculation), and not for end-use consumption, would that cause a drop in shipments?"
If your theory is that speculators don't ship things, that's true. But they also don't generally buy them either. They buy promises on paper to deliver (or sometimes cash settlement) commodities in the future. So that alone isn't enough. It might drive prices up, and the quantity demanded for shipment at that price would likely drop. It's not clear to me though, what the price of commodities has to do with shipping tonnage. Wall St. is influental, but it can't change the atomic weight of copper or carbon.
One thought: export restrictions mean less wheat for shipping. But I don't know the breakdown of that particular index to hazard whether this is a sufficient explanation.
posted by pwnguin at 3:41 PM on February 7, 2011
If your theory is that speculators don't ship things, that's true. But they also don't generally buy them either. They buy promises on paper to deliver (or sometimes cash settlement) commodities in the future. So that alone isn't enough. It might drive prices up, and the quantity demanded for shipment at that price would likely drop. It's not clear to me though, what the price of commodities has to do with shipping tonnage. Wall St. is influental, but it can't change the atomic weight of copper or carbon.
One thought: export restrictions mean less wheat for shipping. But I don't know the breakdown of that particular index to hazard whether this is a sufficient explanation.
posted by pwnguin at 3:41 PM on February 7, 2011
We solve the problem tomorrow by banning soda made with HFCS. How much corn is being
turned into empty calories in junk food.
posted by humanfont at 5:32 PM on February 7, 2011 [1 favorite]
turned into empty calories in junk food.
posted by humanfont at 5:32 PM on February 7, 2011 [1 favorite]
Errr, any blog that conflates Keynesian economic theory with Laffer/Reagan voodoo economics is clearly not worth linking, but thanks for the contribution.
True that's reason enough to dismiss it, but I suspect that the numbers used to generate that bar chart of wheat production are also horribly wrong. Unless I missed a year somewhere, there ought to be only two years around 680mm tonnes, not three. Then there's the idea that the price of wheat might be linked in some way, in some places, to other substitutable grains which may not have had such good years; perhaps total grains and world average prices would've been a better choice to chart, but that would presumably be needless work when you've already decided it's all just "speculation" that done it. Then in the opposite direction there's the fact that he's equating total world production of wheat, regardless of quality or type, with "supply" for one particular US contract price on a specific type of wheat. Lots of reasons to not trust yon random blog entry over there.
Similarly, increased demand and decreased supply are probably enough reason to expect higher food prices, but they aren't the only reasons we've got. This time around it looks to me like there's a noticeable amount of what Malor above calls 'global monetary disorder' involved. With all the monetary shenanigans going on, the nominal demand curve gets steeper, for various inputs and outputs too, and prices have to rise further to find equilibrium in a world of monetary plenty and resource scarcity. It's inflation, all right. It's inflation that's chosen to manifest itself in some peculiar ways, but nonetheless.
So, yeah; global warming, bad luck with weather, population growth, rapid economic growth in some parts, biofuels, and money debt inflation games... it's more difficult than it was in 2007 to tell which is contributing more to the prices, it seems like they're all doing so at rather alarming levels. Bad luck with the weather will obviously happen from time to time, but the reaction is going to be more extreme when the market is in the kind of shape it's in with all those other factors. Meanwhile, continued environmental degradation of various sorts and increasing scarcity of water for example are merely at more normal levels of depressingness, waiting for some other day for their turn to become more urgent problems.
But as for the poor maligned speculators, those who rush to say "OMG it's the speculatorz AGAIN!!!" above all and to the exclusion of all those various more obviously contributing factors are just not worth listening to any more. It's been a couple years of trying, and they've come up with no kind of convincing argument. That includes Angela Merkel, who would be a much better choice of person to link to for those who want to push the unlikely but strangely popular idea that big investment banks and incompetent commodities traders are to blame for everything that's wrong in the world. adamvasco even linked to an article using Masters' 2008 testimony as support; hasn't that been totally discredited by now? He blamed the index funds as I recall it; looking up one of the most popular agricultural commodities ETFs around (DBA), I see shares out are actually down a bit since January 2010. I'm not going to try and find totals for them all, as I'm quite confident we'd already be hearing all about it if they were way up, but looking at CFTC's "bank participation report", long interest by banks in CBOT wheat is virtually unchanged since a year ago, while short interest is up a bit. In corn and soybeans they're a whole lot more short than a year ago. The idea that index funds and excessive speculation were were the main thing driving prices up looks even less realistic to me now than it did then. Ah well, let them fiddle with position limits all they like, I suppose it probably won't do too much damage. I do wonder what they'll try when that fails; good old-fashioned price controls, perhaps.
posted by sfenders at 5:33 PM on February 7, 2011 [1 favorite]
True that's reason enough to dismiss it, but I suspect that the numbers used to generate that bar chart of wheat production are also horribly wrong. Unless I missed a year somewhere, there ought to be only two years around 680mm tonnes, not three. Then there's the idea that the price of wheat might be linked in some way, in some places, to other substitutable grains which may not have had such good years; perhaps total grains and world average prices would've been a better choice to chart, but that would presumably be needless work when you've already decided it's all just "speculation" that done it. Then in the opposite direction there's the fact that he's equating total world production of wheat, regardless of quality or type, with "supply" for one particular US contract price on a specific type of wheat. Lots of reasons to not trust yon random blog entry over there.
Similarly, increased demand and decreased supply are probably enough reason to expect higher food prices, but they aren't the only reasons we've got. This time around it looks to me like there's a noticeable amount of what Malor above calls 'global monetary disorder' involved. With all the monetary shenanigans going on, the nominal demand curve gets steeper, for various inputs and outputs too, and prices have to rise further to find equilibrium in a world of monetary plenty and resource scarcity. It's inflation, all right. It's inflation that's chosen to manifest itself in some peculiar ways, but nonetheless.
So, yeah; global warming, bad luck with weather, population growth, rapid economic growth in some parts, biofuels, and money debt inflation games... it's more difficult than it was in 2007 to tell which is contributing more to the prices, it seems like they're all doing so at rather alarming levels. Bad luck with the weather will obviously happen from time to time, but the reaction is going to be more extreme when the market is in the kind of shape it's in with all those other factors. Meanwhile, continued environmental degradation of various sorts and increasing scarcity of water for example are merely at more normal levels of depressingness, waiting for some other day for their turn to become more urgent problems.
But as for the poor maligned speculators, those who rush to say "OMG it's the speculatorz AGAIN!!!" above all and to the exclusion of all those various more obviously contributing factors are just not worth listening to any more. It's been a couple years of trying, and they've come up with no kind of convincing argument. That includes Angela Merkel, who would be a much better choice of person to link to for those who want to push the unlikely but strangely popular idea that big investment banks and incompetent commodities traders are to blame for everything that's wrong in the world. adamvasco even linked to an article using Masters' 2008 testimony as support; hasn't that been totally discredited by now? He blamed the index funds as I recall it; looking up one of the most popular agricultural commodities ETFs around (DBA), I see shares out are actually down a bit since January 2010. I'm not going to try and find totals for them all, as I'm quite confident we'd already be hearing all about it if they were way up, but looking at CFTC's "bank participation report", long interest by banks in CBOT wheat is virtually unchanged since a year ago, while short interest is up a bit. In corn and soybeans they're a whole lot more short than a year ago. The idea that index funds and excessive speculation were were the main thing driving prices up looks even less realistic to me now than it did then. Ah well, let them fiddle with position limits all they like, I suppose it probably won't do too much damage. I do wonder what they'll try when that fails; good old-fashioned price controls, perhaps.
posted by sfenders at 5:33 PM on February 7, 2011 [1 favorite]
s/compliementary/somplementary dammit. Now how am I going to get all this free wheat out of my driveway??
posted by anigbrowl at 6:25 PM on February 7, 2011
posted by anigbrowl at 6:25 PM on February 7, 2011
Not with this cellphone keyboard, apparently...
posted by anigbrowl at 6:26 PM on February 7, 2011 [1 favorite]
posted by anigbrowl at 6:26 PM on February 7, 2011 [1 favorite]
You don't wanna share - why should the Blue give ya the Clue?
Oh, it's not super sekret or anything, just that most people don't have access to Clarkson's or daily feeds from the Baltic or other shipping databases, so I'm kinda making an ex catherda sort of statement, and people should judge it as such (arguments from authority are inherently less valid, etc.). The data is there, it's just not easy to put together unless you're dealing with it every day.
FWIW, the pure play operators in N America I know personally are very, very pessimistic about commodities shipping in the next 6 to 8 quarters.
posted by digitalprimate at 6:58 PM on February 7, 2011
Oh, it's not super sekret or anything, just that most people don't have access to Clarkson's or daily feeds from the Baltic or other shipping databases, so I'm kinda making an ex catherda sort of statement, and people should judge it as such (arguments from authority are inherently less valid, etc.). The data is there, it's just not easy to put together unless you're dealing with it every day.
FWIW, the pure play operators in N America I know personally are very, very pessimistic about commodities shipping in the next 6 to 8 quarters.
posted by digitalprimate at 6:58 PM on February 7, 2011
those who rush to say "OMG it's the speculatorz AGAIN!!!" above all and to the exclusion of all those various more obviously contributing factors
Well, isn't it generally accepted that the huge price spike in oil a couple years ago was from speculation? I didn't believe it was possible at the time, for the simple reason that the oil market is gigantic, probably the single largest market in the world, and the prices stayed high for a long time. I didn't think speculators could have that much financial power, but it seems to be common wisdom that they do.
Clearly, there are a lot of other intersecting trends; it's not happening in a vacuum. But I think they're magnifying the problem a great deal.
Speculation is an important part of a healthy market; speculators provide both liquidity and supply at the low and high ends of the market. But I think the speculating community went cancerous a long time ago, with all their exotic financial instruments and massive leverage, and they're slowly eating us.
Had the market been allowed to correct in 2008, many of them would have been wiped out, but the endless bailouts keep them in business through thick and thin.
posted by Malor at 9:06 PM on February 7, 2011
Well, isn't it generally accepted that the huge price spike in oil a couple years ago was from speculation? I didn't believe it was possible at the time, for the simple reason that the oil market is gigantic, probably the single largest market in the world, and the prices stayed high for a long time. I didn't think speculators could have that much financial power, but it seems to be common wisdom that they do.
Clearly, there are a lot of other intersecting trends; it's not happening in a vacuum. But I think they're magnifying the problem a great deal.
Speculation is an important part of a healthy market; speculators provide both liquidity and supply at the low and high ends of the market. But I think the speculating community went cancerous a long time ago, with all their exotic financial instruments and massive leverage, and they're slowly eating us.
Had the market been allowed to correct in 2008, many of them would have been wiped out, but the endless bailouts keep them in business through thick and thin.
posted by Malor at 9:06 PM on February 7, 2011
I've noticed this a lot in Korea. Most abruptly, I just left for 3 weeks and came back to find everything more expensive. Chicken is way up and almost all vegetables became 20-30 cents more expensive. Last year when they had a cabbage crisis, heads of cabbage were going for like 8-10$.
posted by GilloD at 9:22 PM on February 7, 2011
posted by GilloD at 9:22 PM on February 7, 2011
Look at the history of a crop like wheat and you'll see that Russia has doubled its production in the last decade going from a net importer to an exporter. The US isn't producing nearly as much as it could. Some countries like Brazil have started to enter the market as new tropical varieties have become available.
posted by humanfont at 9:25 PM on February 7, 2011
posted by humanfont at 9:25 PM on February 7, 2011
Well, isn't it generally accepted that the huge price spike in oil a couple years ago was from speculation?
People keep repeating that, yet producers didn't ramp up production to take advantage of the high prices and pop the bubble, it took the GFC to do that.
So I think as big a factor was tight supply of an inelastic commodity.
posted by bystander at 12:04 AM on February 8, 2011
People keep repeating that, yet producers didn't ramp up production to take advantage of the high prices and pop the bubble, it took the GFC to do that.
So I think as big a factor was tight supply of an inelastic commodity.
posted by bystander at 12:04 AM on February 8, 2011
People keep repeating that, yet producers didn't ramp up production to take advantage of the high prices and pop the bubble, it took the GFC to do that.
Actually it was both. Lots of new projects (notably in Saudi Arabia) came into production in 2008, a delayed response to previous years of high prices, and world oil production had finally managed to exceed its years-ago levels and was up to what may prove to be an all-time high just before the crash knocked down demand. Such good timing!
If you take estimates of demand elasticity, demand growth, and production, and try to work out where prices should've been, in early 2008 it was hard to come up with a number much less than $120/bbl for oil. $150 may have been a bit excessive; I can respect the idea that a speculative mania was responsible for maybe 20% of the price during the quick price spike at the end, even if my own guess would be somewhat less.
Malor: Had the market been allowed to correct in 2008, many of them would have been wiped out, but the endless bailouts keep them in business through thick and thin.
The oil market was allowed to correct. A 73% fall in price is enough to count as a correction. If $30 of the price at the very top was due to speculative excess, so was a fair amount of the price drop at the low. At $40 in December 2009 it looked to be pricing in armageddon. At the extreme high and the extreme low, the price stayed there for just a couple of months, a time short enough that over-enthusiastic market participants with too much leverage could plausibly have deserved a substantial part of the blame. But that's a relatively small part of the story; it was most certainly not some giant "speculative bubble" from 2002-2008. If it somehow had been, we wouldn't have been so quickly back to $75/barrel oil immediately after the panic, before the world economy had even begun to recover, and $100 (Brent) now.
That was oil in 2008 though, not wheat in 2011. There was a general perception around that peak oil was right now and therefore the price was going up forever. There hadn't been much of a "correction" for years. At this moment in time I suspect people with money are likely to be a wee bit more cautious about volatility in the commodities markets than they were then. There is much skepticism about the current price of grains, as seen for instance in the rise in short positions taken via banks. I'm not entirely sure what's driving it other than the obvious bad weather, I don't follow agricultural commodities that closely, but rushing to blame the speculators this time looks substantially less sensible than it did for a brief moment in 2008.
posted by sfenders at 4:18 AM on February 8, 2011
Actually it was both. Lots of new projects (notably in Saudi Arabia) came into production in 2008, a delayed response to previous years of high prices, and world oil production had finally managed to exceed its years-ago levels and was up to what may prove to be an all-time high just before the crash knocked down demand. Such good timing!
If you take estimates of demand elasticity, demand growth, and production, and try to work out where prices should've been, in early 2008 it was hard to come up with a number much less than $120/bbl for oil. $150 may have been a bit excessive; I can respect the idea that a speculative mania was responsible for maybe 20% of the price during the quick price spike at the end, even if my own guess would be somewhat less.
Malor: Had the market been allowed to correct in 2008, many of them would have been wiped out, but the endless bailouts keep them in business through thick and thin.
The oil market was allowed to correct. A 73% fall in price is enough to count as a correction. If $30 of the price at the very top was due to speculative excess, so was a fair amount of the price drop at the low. At $40 in December 2009 it looked to be pricing in armageddon. At the extreme high and the extreme low, the price stayed there for just a couple of months, a time short enough that over-enthusiastic market participants with too much leverage could plausibly have deserved a substantial part of the blame. But that's a relatively small part of the story; it was most certainly not some giant "speculative bubble" from 2002-2008. If it somehow had been, we wouldn't have been so quickly back to $75/barrel oil immediately after the panic, before the world economy had even begun to recover, and $100 (Brent) now.
That was oil in 2008 though, not wheat in 2011. There was a general perception around that peak oil was right now and therefore the price was going up forever. There hadn't been much of a "correction" for years. At this moment in time I suspect people with money are likely to be a wee bit more cautious about volatility in the commodities markets than they were then. There is much skepticism about the current price of grains, as seen for instance in the rise in short positions taken via banks. I'm not entirely sure what's driving it other than the obvious bad weather, I don't follow agricultural commodities that closely, but rushing to blame the speculators this time looks substantially less sensible than it did for a brief moment in 2008.
posted by sfenders at 4:18 AM on February 8, 2011
High prices are bad for poor people but good for farmers (likewise, bad for net importers, good for exporters). So the key issue is why haven't rising prices led to rising production as farmers bring in marginal land/invest more in high yield seeds and expensive machinery etc.
Several possibilities
1) Agriculture is not a very free market. Tariffs, subsidies, export restrictions etc distort market price signals. The economic arguments for removing all of these are straightforward, the politics complex.
2) Some countries lack the capacity to adapt to the market e.g. Following the last price spike European and American farmers increased production, but many really poor countries, especially in Africa, didn't. These poor countries often lack the basics for a functioning market e.g. farmers lack access to transport systems, warehouses, fertilisers, better seeds, etc. As a consequence they cannot enjoy the benefit of rising prices, nor benefit their countrymen by raising production. At heart this is a political failure - not surprisingly these countries are fairly appallingly governed and agriculture ministries are often the lowest status part of government (The WFP considers market development an essential part of defending countries from food insecurity)
3) Poverty. Even if more land is brought on line, and higher yield crops planted, if demand grows faster poor people will be left out. This is not a matter of a shortage of food in the strict sense. It is a matter of European cows and American SUVs having a greater purchasing power than Ethiopian peasants. The only way out of this is economic development (and the rich world can help by at least removing our cow/SUV subsidies!)
posted by Philosopher's Beard at 6:26 AM on February 8, 2011
Several possibilities
1) Agriculture is not a very free market. Tariffs, subsidies, export restrictions etc distort market price signals. The economic arguments for removing all of these are straightforward, the politics complex.
2) Some countries lack the capacity to adapt to the market e.g. Following the last price spike European and American farmers increased production, but many really poor countries, especially in Africa, didn't. These poor countries often lack the basics for a functioning market e.g. farmers lack access to transport systems, warehouses, fertilisers, better seeds, etc. As a consequence they cannot enjoy the benefit of rising prices, nor benefit their countrymen by raising production. At heart this is a political failure - not surprisingly these countries are fairly appallingly governed and agriculture ministries are often the lowest status part of government (The WFP considers market development an essential part of defending countries from food insecurity)
3) Poverty. Even if more land is brought on line, and higher yield crops planted, if demand grows faster poor people will be left out. This is not a matter of a shortage of food in the strict sense. It is a matter of European cows and American SUVs having a greater purchasing power than Ethiopian peasants. The only way out of this is economic development (and the rich world can help by at least removing our cow/SUV subsidies!)
posted by Philosopher's Beard at 6:26 AM on February 8, 2011
fallacy of the beard: "they would have less trouble if they just went for the american solution, which is to quietly reduce the food content by about 3% every two months without changing the price; the bonus is that down the line when things are better, they can go back to the old level and advertise it as "new: larger size!""
Randy Taylor agrees.
posted by symbioid at 9:18 AM on February 8, 2011
Randy Taylor agrees.
posted by symbioid at 9:18 AM on February 8, 2011
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posted by GuyZero at 9:37 AM on February 7, 2011 [1 favorite]