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A soaring food price fear


Markets are bracing for a surge in global political unrest, as the worst US drought in half a century sent corn and soybean prices soaring to record highs overnight.

The combination of scorching temperatures and a lack of rain has now pushed corn and soybean prices above the peaks they reached during the 2007-08 food crisis. Overnight, the corn futures price climbed above $US8 a bushel for the first time, while that of soybeans hit a record $US17.12 a bushel.

Although the wheat price has not yet hit record highs, it has jumped more than 50 per cent in the past five weeks, and is now above the level it hit after Russia’s crop failure in 2010, which prompted Moscow to impose a ban on grain exports.

Grain traders have been anxiously monitoring the effect of the drought, which is the worst since 1956 in terms of the areas affected. In its weekly crop report, the US government said that only 31 per cent of the corn crop was in “good to excellent condition”, a sharp drop from its estimate of 40 per cent last week. For soybeans, the estimate dropped to 34 per cent from 40 per cent.

But the devastating US drought will have massive global effects. The United States is the world’s largest exporter of corn, soybeans and wheat – supplying around one-third of these staple grains traded on the global market.

Already, some analysts are warning that the world could be in for a period of intense social and political instability similar to that seen in 2007-08 when soaring food prices sparked riots in dozens of countries. They note that last year’s political instability in the Arab world was partly caused by surging grain prices.

The effect of rising grain prices is most pronounced in poor countries, where people can spend up to three-quarters of their income on food. Because food is such an important part of consumer spending, surging food prices are quickly reflected in a jump in official inflation figures.

Major emerging countries such as China, India and Brazil have been cutting interest rates recently in order to buffer their own economies from the drag on growth caused by the continuing European debt crisis and the anemic US recovery.

Analysts fret that faced with higher inflation, central banks in emerging countries might hold back from applying stimulus policies, and could even hike interest rates to control rising prices. This would deal a further blow to the moribund global economy.

In particular, they fear that surging soybean prices will quickly be reflected in higher Chinese inflation. Already this year soybean prices have climbed 40 per cent, creating a problem for China, by far the world’s largest importer of soybeans.

The Business Spectator

12 Comments on "A soaring food price fear"

  1. james herman on Wed, 25th Jul 2012 1:08 pm 

    There is no potential food shortage at all. 42% of Americas biggest cash crop, corn, is sent down the rat hole called the ethanol program. 39 million acres wasted. 78,000 btus of energy used to produce a gallon of ethanol that contains…74,000 btus of energy. The only parallel would be Chairman Maos program of melting down pots and pans to make more pots and pans. An ethanol “industry” that consumes, from production to processing, more fresh water than the sanitary needs of every man, woman and child in the country. The corn ethanol producers don’t even believe their own narrative any longer, regardless. It’s now a “national defense” issue. The Renewable Fuels Association, in Des Moine Iowa of all places, is literally frantic over calls in Congress to limit or end the scam in light of the drought. It should end……….according to UNICEF, 3 million Black infants will die on the African continent this year because of corn price increases. The ethanol program is not only an economic fraud….it’s murder as well. But, it has its supporters—like the erstwhile Republican Senator, Chuck Grassley, member of the Senate Ag Committee …..who farms 4000 acres of Iowa corn ground-and loves the mother of all subsidies: The Federal Crop Insurance program. Besides, the cows and chickens would really appreciate it if the corn ethanol program….was put out to pasture. And by the way, without the ethanol handout, John Deere is a $42.00 stock.

  2. Kenz300 on Wed, 25th Jul 2012 1:32 pm 

    Overpopulation is the elephant in the room. The world added a billion more people in the last 12 years. It will add another billion in the next 10 years. Endless population growth is not sustainable. The worlds resources are finite while population growth continues.
    Endless population growth only leads to more poverty, suffering and despair. If you can not provide for your self you can not provide for a child.
    Access to family planning services and education needs to be available to all that want it.

  3. BillT on Wed, 25th Jul 2012 1:56 pm 

    james, you said it all! ^_^

  4. dsula on Wed, 25th Jul 2012 5:37 pm 

    The sooner we run out of food, the better for the planet. Population is still growing.

  5. WaltR on Wed, 25th Jul 2012 7:18 pm 

    Ethanol use and exports will not stop no matter how bad it gets, since we have the best government that money can buy. So as Marie told her people long ago, we will be told “Let them eat cake!”

  6. SOS on Wed, 25th Jul 2012 11:37 pm 

    You are correct WaltR, it’s all about politics, peak politics.

    One big reason food prices will continue to rise is food stamps. This program increases demand by almost 25%, especially on high end groceries, withou adding anything to supply.

  7. BillT on Thu, 26th Jul 2012 12:57 am 

    SOS…you have a very narrow vision of life. Do you think that the 6.7 billion other people who live on the earth use food stamps? They too are paying more for food because of the droughts and misuse of grains for fuel. Why do you think there were riots in Egypt last summer? Do you even know that there is a whole world outside the 50 states?

  8. underfire on Thu, 26th Jul 2012 1:47 am 

    OMG!! That lb of wheat in that loaf of bread is going from 12 cents to 15 cents!!! And the average American is going to have to work 12 minutes instead of ten minutes to buy a three lb. chicken.
    The End Of The World Is Here!!!

  9. fiedag on Thu, 26th Jul 2012 2:47 am 

    underfire it’s not immediately apparent that you are being ironical. I mean I get how much of a cliche it is that Americans only view starvation in terms of what it means for their own burgers and fries, but if you think the poor don’t know about your ethanol subsidies then you are mistaken. Do THEY think you are being ironical? No, probably not. For them their hunger is no laughing matter, and their burning resentment is justified.

  10. underfire on Thu, 26th Jul 2012 3:11 am 

    firedag….do you think it matters to anyone in America that the price of corn in a box of Kelloggs goes up two cents? That box goes up 10 cents a year to cover packaging and corporate profits and nary a peep is heard.

    And what subsidies does ethanol get? None that I know of, verses say Big Oil and their sidekick Big Military.

    And no, I’m not nor ever have been a corn grower. But I’ve spent a long time in the industry.

    FYI< Ethanol at 110 octane is blended with 84.5 octane gasoline to arrive at 87 octane, saving about a dollar a gallon in cracking. They both wholesale for about the same price.

  11. Spiritof1976 on Thu, 26th Jul 2012 7:09 am 


    I think the point may be that, while an extra two cents for bread may not matter much in America, it’s going to matter a hell of a lot in, say, Burkina Faso or Bangladesh.

  12. BillT on Thu, 26th Jul 2012 8:10 am 

    Ethanol is subsidized in a hundred indirect ways, just as big Ag is subsidized in a hundred ways. As is Big oil, Big Pharm, etc. ALL of the big corporations get your tax money to play with or they would not exist today. None of them.

    And, yes, it DOES matter if inflation increases the food bill by 10% per year. At that rate, in 7 years the bill has doubled. But, I bet your income has NOT doubled in the last 7 years.

    I remember milk at $ 0.19 per quart, bread at $ 0.22 per loaf, 12 oz. sodas for $ 0.06, gas at $0.29 per gallon. THAT is how you have been screwed in the last 60 years. If you don’t notice prices going up, you are either part of the 1% or you never buy anything.

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