Warfare: Food Supply/Access

[Watcher In The Middle]

Here's the link to the FT story about the spike in rice prices today. The US is one of the few rice export markets that is still functioning as a free market.

Jump in rice price fuels fears of unrest
By Javier Blas in London and Daniel Ten Kate in Bangkok
Published: March 27 2008

Rice prices jumped 30 per cent to an all-time high on Thursday, raising fears of fresh outbreaks of social unrest across Asia where the grain is a staple food for more than 2.5bn people.

The increase came after Egypt, a leading exporter, imposed a formal ban on selling rice abroad to keep local prices down, and the Philippines announced plans for a major purchase of the grain in the international market to boost supplies. Global rice stocks are at their lowest since 1976.

Link to article

Another Article

Went back & checked federal crop acreage estimates (January, 2008) on amount of farmland in rice production, and there looks to be only a minimal increase over last year. There's just no overhang of supply in the marketplace.

[SWJED]

Watcher In The Middle, thanks for the links. With much of my attention devoted to other portions of the SWJ Empire of Knowledge, I am most deficient in following the great contributions of Council members.

Bottom-line, this one caught my attention on contributing - there are dozens of the same on many threads. To all who are making this thing work - thank you very much!

[Watcher In The Middle]

...that's interesting here:

Hedge funds raise profile in U.S. grain business
Thu Mar 27, 2008 3:47pm EDT
By Sam Nelson

CHICAGO (Reuters) - The presence of hedge funds in the U.S. agricultural sector expanded on Thursday with the sale of ConAgra Foods Inc's grain business to Ospraie, as speculators increasingly tie their futures trades to physical markets.

Trade sources said the sale was also a sign of tough times for grain companies which must find ways to protect against wild swings in the futures market and raise extra money for margin calls due to a credit crunch.

ConAgra said earlier Thursday it would sell its commodity trading and merchandising operations to Ospraie Special Opportunities fund, an affiliate of investment management firm Ospraie Management.

Link to full article

Another viewpoint

There's a whole lot of "talk" going on about this one. First off, there's other recent "new" hedge funds charging into the commodity biz, being that the mortgage and credit business profit opportunities have dried up. So, it's onward to commodities.

This market's going to be a whole lot more interesting, though. First off, we're already sitting at or near record highs in prices, and the market (in many commodities) may already be close to being fully priced. But, these hedge funds will ring much more liquidity into the commodities markets, and that tends to mean higher, and more volatile pricing. Means that nations buying food exports from the US, but also other nations, will find everything to be more costly.

Secondly, ConAgra appears to be betting that it's a great time to sell their Commodities merchandise and trading business, because (a) getting $2.1 bil US isn't pocket change, plus (b) there is no business disadvantage to them, because they are the only one of the majors which had a separate line of business for commodities trading. Looks like they think the assets they are selling today will be back on the market in a few years for less, and they can buy back if they so decide to.

But this has interesting potential considerations, because these hedge funds are out to make serious returns in commodities, and that means bottom line increasing prices for commodities. And the US is fast becoming one of the "suppliers of last resort" in terms of open market access for grain crops.

Imagine if wheat (Ex.: May, 2008 Wheat at CBOT closed right at $10 a Bu. this last week), goes up another 25%, which isn't out of the ballpark. Imagine $20 a bu.

This has real implications, because many of the nations which are major food importers are nations we have/had long standing negative balance of trade issues with. Those deficits may start to disappear, because (a) commodity food prices are going up rapidly, and (b) We've (the US) has the available food supply.

One immediate result would likely be that these nations will not want the US dollar to strengthen, because then acquiring the commodities will cost even more.

Game is going to get interesting....

Normally, this might not be a topic for SWJ. But food shortages can tend to create some interesting decision making among nations, and using armed conflict to establish future food supplies is one of those considerations, and it's not like it hasn't been a motivation in the past.

Btw, SWJ is "THE BEST". Love it here, because if you are into thinking, here's the place to be. If you are into "Talking Points", IMO, you best move on.

[jcustis]

On the micro level, this is a big problem in the Philippines. My wife just spent an hour or two talking to her mother who is in Pasig City (suburb of Manila) right now. It seems that the average price went from 18 pesos to 40 pesos is a short and sharp increase, and the result is many people are having a hard time getting access to the staple.

The news is getting significant airtime on the nightly news shows we can catch via the satellite channel back to home for her. Folks are getting worried. Don't know if this is unprecedented, but it is definitely becoming uncomfortable across the country.

[JJackson]

see also this thread on Ug99 wheat rust http://council.smallwarsjournal.com/...highlight=rust

[Norfolk]

Normally, this might not be a topic for SWJ. But food shortages can tend to create some interesting decision making among nations, and using armed conflict to establish future food supplies is one of those considerations, and it's not like it hasn't been a motivation in the past.

This is most definitely a topic for the SWJ, and a most important one at that. With food staples (and fuel) costs shooting up all over the globe, and real hardship affectling the lives of people across the world (even in the West it's hurting many people now), and growing political instability (people killing each other for cooking oil in China is just one sign of the stress that is building up), oh yeah, this is a topic for us. Great work, Watcher.

This is very unsettling news; and even Cargill has sold one of its operations to this hedge fund. I mean Cargill?!, the great-grandaddy of them all? I can't help but think that there ought to be laws against these sorts of acquisitions.

[selil]

Along this topic I thought this article was great at looking towards the food and water shortage issue. There are very few ways to create water and all of them cost orders of magnitude more than oil. All forms of food agriculture require water. Water is the future resource of conflict much like it has always been.


Link to story

Those who control oil and water will control the world

History may not repeat itself, but, as Mark Twain observed, it can sometimes rhyme. The crises and conflicts of the past recur, recognisably similar even when altered by new conditions. At present, a race for the world's resources is underway that resembles the Great Game that was played in the decades leading up to the First World War. Now, as then, the most coveted prize is oil and the risk is that as the contest heats up it will not always be peaceful. But this is no simple rerun of the late 19th and early 20th centuries. Today, there are powerful new players and it is not only oil that is at stake.

It was Rudyard Kipling who brought the idea of the Great Game into the public mind in Kim, his cloak-and-dagger novel of espionage and imperial geopolitics in the time of the Raj. Then, the main players were Britain and Russia and the object of the game was control of central Asia's oil. Now, Britain hardly matters and India and China, which were subjugated countries during the last round of the game, have emerged as key players. The struggle is no longer focused mainly on central Asian oil. It stretches from the Persian Gulf to Africa, Latin America, even the polar caps, and it is also a struggle for water and depleting supplies of vital minerals. Above all, global warming is increasing the scarcity of natural resources. The Great Game that is afoot today is more intractable and more dangerous than the last.

MUCH MORE AT THIS LINK

[Watcher In The Middle]

Corn Hits $6 a Bushel on Tight Supplies
Thursday April 3, 6:56 pm ET
By Stevenson Jacobs, AP Business Writer

Corn Prices Jump to Record $6 a Bushel, Driving Up Costs for Food, Alternative Energy

NEW YORK (AP) -- Corn prices jumped to a record $6 a bushel Thursday, driven up by an expected supply shortfall that will only add to Americans' growing grocery bill and further squeeze struggling ethanol producers.

Corn prices have shot up nearly 30 percent this year amid dwindling stockpiles and surging demand for the grain used to feed livestock and make alternative fuels including ethanol. Prices are poised to go even higher after the U.S. government this week predicted that American farmers -- the world's biggest corn producers -- will plant sharply less of the crop in 2008 compared to last year.

Link to article

Article is ok, but doesn't fill in the pieces behind the real story - which is, Why the Drop in Acreage devoted to corn production?

Looks to be a number of reasons:

01 Crop rotation. Running continuous corn results in lower yields per acre, and even those yields require increased applied nitrogen per acre. Either a crop rotation of corn/alfalfa or corn/soybeans is a better bet, with more sustainable, higher yields, with lower applied nitrogen per acre requirements.

02 Applied nitrogen (per acre) costs are way up - no surprise there. So cost reduction is a big thing, and therefore, #1 comes back into play.

03 Virtually all the "bankable" farmland has already been put back into production. Where you (as the farmer) could grab 20, 30, or 40 acres out of "Bankable" land, now it's 1, 2, or 3 acres, and you are scraping edges of grass waterways, reclaiming old building sites, adding an extra crop row along roads. In other words, the farming community is "working the edges" for more crop production, because that's all that is left.

04 Upfront investment costs. Bottom line (and this is from some friends who farm)the upfront costs for corn (vrs. the cash return per acre, based upon historical per acre crop production & current day prices), is that other grain crops such as soybeans are a better deal in the marketplace right now.

In other words; (Upfront money/production costs per acre)/(total anticipated revenue per acre) for corn is higher than for other crops. At least right now, hopefully will change. We'll see.

Congress had better rethink the whole corn based ethanol push, because corn at $7.25+ a Bu. means REAL PAIN for the American consumer. And there will be a pushback.

[Stan]

Watcher, Thanks for some intriguing conversation !

Who'd of thought the USDA has a Corn Briefing Room

Tons of great data, lots of links for old NCOs to research , but the majority is far more optimistic than the recent articles.

Ethanol Expansion in the United States: How Will the Agricultural Sector Adjust? examines effects of the expansion in U.S. ethanol production. Market impacts extend well beyond corn, the primary feedstock for ethanol in the United States, to supply and demand for other crops, such as soybeans and cotton, as well as to U.S. livestock industries. As a consequence of these commodity market impacts, farm income, government payments, and food prices also change. See narrated slideshow for an overview; see related Amber Waves feature U.S. Ethanol Expansion Driving Changes Throughout the Agricultural Sector.

More interesting is how Argentina simply stands back and watches our corn production (supply and demand) and adjusts "fire" errr production.

World Corn Trade

While the United States dominates world corn trade, exports only account for a relatively small portion of demand for U.S. corn—about 20 percent. This means that corn prices are largely determined by supply-and-demand relationships in the U.S. market, and the rest of the world must adjust to prevailing U.S. prices. This makes world corn trade and prices very dependent on weather in the U.S. Corn Belt. However, Argentina, the second-largest corn exporter in most years, is in the Southern Hemisphere. Farmers there plant their corn after the size of the U.S. crop is known, providing a quick, market-oriented supply response to short U.S. crops.