Ag Recovery: 2009 Food Shortage
Filed Under: Hot Fudge
Since the June 2007 highs, commodities have plunged to lows, with corn down 50%, soy 40% and wheat 60%. Yesterday, the USDA reduced its projected corn harvest to12.02 billion bushels, down from last month’s revised estimate of 12.03 billion and below analysts’ estimates of 12.08 billion, and the USDA also went on further to state that corn yield per acre is expected to be 153.8 bushels. Analysts expected the yield to be 154.4 bushels.
In addition to this, farmers are also getting a hit from the current global crisis, due to the fact that banks are tightening credit, many farmers worldwide are having a tough time obtaining credit, which would help in the purchase of the increasingly scarce potash fertilizer as well as farming equipment.
Fundamentally the ag story worldwide is this, the world is at 40 year agricultural stock lows, the consumption growth rate is put at about 3%, which is surely no where near the current production rate, and the world’s population growth rate (a strong fundamental factor for agriculture) is steadily growing. It is more likely that people would cut down on the purchase of luxury items, but people always have to eat, even if they have to reduce their consumption due to financial tightness, the demand for food will remain.
It is important to note that without farmers not being able to obtain bank credit, the likely reaction is that they would delay plantings, or have inefficient production rates. Some may argue that in 2007 farmers saw record gains in the agricultural complexes making very high margins on their sales, also in the same light, 2007 also saw record increase in the price of potash which is most commonly used to make fertilizers, therefore translating to higher prices for fertilizer. The price of fertilizer is said to have jumped some 70% in 2007. While this may make up just a small percentage of the cost of farming, they would have to bear these costs again this year in the purchase of fertilizer, and with little financing available the picture doesn’t look good.
Shipping docks are piling up with goods that are not being sold due to frozen Letter of Credit, harvest reports are pointing to harvests that are much lower than what was seen last year. Consumption may currently be slow, but the demand for food commodities still remains, but a bigger problem is the issue of farmers not being able to farm 2009’s harvest due to tightening credit.
When the economy begins to rebound next year, there is a very strong possibility of a food shortage crisis arising. The current world economic crisis may affect the fundamentals in the short term, but there’s a greater adverse effect to be expected in 2009 when the world begins to recover from this period of economic fall, and there still remains the story of inflation, which usually provide itself as a lunch pad for commodities.
Discuss this post at the futurescafé forum
Recent Posts:
Iran’s barter trade, a pattern to come
LCguy | Nov 12, 2008 | Reply
I have read that letters of credits are frozen, however, the picture seems to be a little more mixed.
A letter of credit is simply an extension of credit with the specialty that the banks immediately have collateral in the form of the goods being shipped. Typically banks require that the title document (bill of lading) be issued to itself.
Banks have been slow to make loans to each other and to clients and they have increased the collateral requirements for applicants.
At the same time, interbank lending seems to thaw as evidenced by the declining LIBOR rates.
As to AG, I have seen the same story repeated over and over again. On the one hand, I believe your analysis regarding the Ag business, on the oother hand I am sceptical, since the same story of the grain importer is repeated in all the blogs. Finally, it seems that banks are slowly coming back to lending.
Gail Combe | Nov 13, 2008 | Reply
The food shortage is “manufactured”
1. The IMF/World Bank “Structured Adjustment programs” removed nation support systems for third world farmers and drove them into bankruptcy. Countries were blackmailed into producing agricultural goods for export not food and allowing international corporations to buy land and dump subsidized grain, further driving independents into bankruptcy.
2. Four privately owned grain traders control 90% of the grain. Cargill, Louis Dreyfus, Andre, and Bunge. Dan Amstutz, drafted the original text of the WTO Agreement on Agriculture. Amstutz worked for 25 years as a grain trader and VP at Cargill “Throughout his very successful career Dan Amstutz represented and championed ideas and goals of NAEGA membership “ (North American Export Grain Association)
3. The Agreement allows internationals to easily move Ag products over international borders but places heavy financial and paperwork burdens on small farmers. (NAIS animal ID and Guide to Good Farming Practices) It also increased contamination and disease risk by removing quarantine and drastically reducing food testing (by 90% in the USA)
4. Food cartels with “monopoly” like buying power set prices and contract terms. Independent farmers are presented with contracts shifting liability from the multinational corporation to the independent farmer.
5. The “new international” plan for agriculture promotes wholesale destruction of crops and livestock without recourse to testing or vaccination. (see DISEASE-FREE STATUS OIE Animal Health Code)
Between animal ID and tracking (paid by farmer) the massive paperwork and fines associated with Good Farming Practices and the shift of liability no one in their right mind will grow food.
Worse the Global Diversity Treaty allow Multinationals to “harvest” thousands of years of seed breeding for patenting from third world peasants. The European Union is leading the way with laws limiting the sale of seed to only those who can afford enormous fees And Animal patenting is also targeted with an international patenting services already setup and over 600 animal patents registered internationally.
“Food is Power” And the MacMillan, André, Cargill, Dreyfus, Batista, Born and Hirsch families, control a large percentage of the global food market. (The batista family controls JBS Swift one of the worlds largest meat packers)
Moyo | Nov 14, 2008 | Reply
Thanks LCguy for your comment and your insight. You’re absolutely right saying “it seems that banks are slowly coming back to lending.” However they are doing so with tighter lending requirements, which also translates increased time for approval.
The question really is how motivated are farmers? How efficient are they in these times? My thought would be not very
Moyo | Nov 14, 2008 | Reply
Thanks Gail for enlightening us, it’s unfortunate that big players lobby little guys out for their selfish motives…
Gail Combe | Nov 14, 2008 | Reply
Moyo,
The problem is much bigger and personal than anyone realizes. Industrialized farming according to the PEW report, does not support the local community, actually produces less food and causes a loss of topsoil as well as a buildup of poisonous chemicals. (AS a chemist I am NOT an anti-chemical Greenie but a scientist)
Research at Purdue University has shown commercial chickens are very vulnerable to disease due to genetic defects. Industrial mono culture farming could be devastating especial since the Ag giants are intent on wiping out all but commercial varieties of crops and livestock (patented of course)
We did not learn our lesson from the USSR. They killed off most of their good farmers and went from a net exporter to a net importer of food. Unfortunately this time it is farmers worldwide and 3000 years of biodiversity in farm products at risk.
Moyo | Nov 14, 2008 | Reply
for what purpose though? Is it just simply to dominate the markets?
Is there really enough farming power to sustain the world’s demand for food without industrial production?
Gail Combe | Nov 15, 2008 | Reply
Moyo,
Sorry this skips around quite a bit but the subject is not simple.
First, I am a Quality Engineer/Chemist turned farmer. I have no ethical problems with chemicals (if it is not a chemical it is a vacuum) or with capitalism.Well run factory farms have their place but so do family farms. However I do have a problem with a handful of privately owned corporations running my supposedly free republican government and using regulations to cause a food crisis so they can make more money.
The monoculture livestock confinement farms rely on tax susbsidized grain. Most small farmers get no government money, many do not even get a tax break on their land. If bio-diverse traditional farms are compared to factory farms without the tax subsidities they actually do quite well. A report from Pew Foundation had a really tough time trying to justify Industrial Farming. It is well worth the read. Remember “traditional” farmers use tractors, chemicals etc but they are more careful of the land. Industrial farming stripped all two feet of topsoil off my farm because they did not plant winter cover crops (that is why it was sold). I have built up six inches in ten years.
Short pew report: http://www.pewtrusts.org/news_room_detail.aspx?id=38438
Full (125 pg) Pew report: http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Industrial_Agriculture/PCIFAP_FINAL.pdf
Agriculture and Monopoly capital: http://findarticles.com/p/articles/mi_m1132/is_n3_v50?pnum=10&opg=21031832&tag=artBody;col1
This is a very good article on the recent history of TNEs (Trans National Entities). It gives facts figures and graphs showing what we have guessed. The consolidation of power.
Development Dialogue, Special Issue • The Journal of The Dag Hammarskjöld Foundation 1996: http://www.dhf.uu.se/pdffiler/DD1996/DD1996_1-2_10.pdf
My fight is not about industrial farming but whether corporations will use laws to make farming illegal for individuals. The proposed laws are similar to those for drug manufacture. How many average joes can make and sell perscription drugs? How many average joes can sell tomatoes out of their garden??
ISO - Guide to good farming practices: http://www.oie.int/eng/publicat/rt/2502/review25-2BR/25-berlingueri823-836.pdf
Probing the Limits: ISO 9001 Proves Ineffective
http://www.qualitymag.com/Articles/Column/17062620c7c38010VgnVCM100000f932a8c0____
http://www.qualitymag.com/Articles/Letters_From_the_Editor/65730ee7f4c38010VgnVCM100000f932a8c0____
There were 2.2 million farms counted during the last census. I am sure if you counted the hobby farms and backyard gardens it is closer to 4 or 5 million or more. Can the USA afford to reduce the number of food growers to 700,000 factory farms? Can we afford to get rid of the hobby farms preserving rare breeds?
Read the letter the people in control of Agriculture wrote to Pres. Bush. Their only real concern is money not the child staving to death every 5 secs or the farmer committing suicide ever 8 hours.
Letter requesting USA NOT have a food reserve: http://www.naega.org/images/pdf/grain_reserves_for_food_aid.pdf
Bill Clinton Admits Global Free Trade Policy has Forced Millions Of People into Poverty.
http://www.agmates.com/blog/2008/11/01/bill-clinton-admits-global-
Moyo | Nov 19, 2008 | Reply
Thanks for the info Gail….i’ll definitely take time out to go through it and shed as much light as I can through my blog. Check back often and let me know your comments.