Friday, June 5, 2009
Where are the food shortages? How will shortages affect us in the near future? Is there a shortage of corn? wheat? any other food crops?
Most basic food items, such as corn, wheat, and soybeans are bought and sold as "commodities" on international commodity exchanges. The price paid on these commodity markets is subject to the same market forces that drive the other commodity markets, such as oil, cotton, gold and silver. Speculation in any one of these markets can drive prices up, over supply can drive prices down and a shortage of any of the commodities generally means the price will go up. Not only do the commodity exchanges (where commodities are bought and sold in very large amounts) sell actual products for delivery, they also sell contracts for delivery at various dates in the future. So, the price of future contracts gives an idea of where all of the buyers on the world markets think the price (supply, speculation, or shortages) will go.
That said, if you want to know if any product's price will either go up or down in the future, one major indication of the price can come from the commodities markets. The futures' price will also give you an idea of the trend of the prices into the future. However, just like any market, the price of the commodity might be going up at the same time the supply is increasing and also the opposite might be true. You can only get an accurate idea of the supply of any given commodity by studying the market over a long period of time.
Spot shortages, that is, shortages in any given locality, like India or Africa or China, do not indicate the overall supply of the specific commodity since spot shortages may be caused by very local conditions or even the lack of adequate transportation. Also, any time there is a shortage of a given commodity and a resultant price rise, there is a greater incentive for the producers to plant, harvest, pump or dig for the commodity and therefore the price will eventually go back to whatever level the market can support.
Just a note about items outside the commodities markets altogether. Although I mentioned oil as a commodity, it is actually not subject to the same market forces as other commodities since the producers can get together and agree to manipulate the price. Another example of a controlled commodity is diamonds, the supply is closely controlled by the biggest producers so that their are very few market swings.
OK, now we can look at the current market conditions for various commodities and see if there are any shortages or future shortages. Where are these markets? Everything is on the Internet.
For example, today gold is at $954.6 and ounce and is down $25.80 cents. The price is close to a ten year high. Crude oil was at $68.44 a barrel down $.37. Over the past five years, oil is at or below its average.
You can do the same thing for almost all food items. Here is one site, Agriculture Online. Let's look at wheat. At the beginning of this post there is the current chart for wheat. One thing you can see immediately is seasonal fluctuations. If you look at other futures prices, like for 2011 delivery, you will see a correlation with the prices of the most current chart. It appears that the price of wheat is rising, which could come from an increase in the price of oil or from any of a huge number of other possible reasons, none of which have anything to do with supply.
I will continue this discussion in a subsequent post.
Posted by James Tanner at 6:47 PM