The NY Times reported today in their World Business section about the future for commodities — the things we must consume. Wheat, corn, soy beans, mustard seeds with the other staples of life are rising in price, in demand and in scarcity.
There have been droughts and failed harvests here and there but the major culprit is demand. Global demand. Rising demand. Desperate demand. It is Dr. Heilbroner’s famous “revolution of rising expectations”. The world is growing richer and growing more aware from the dissemination of technology. The Times reports on a Nigerian man’s hunger for bread and tea for his breakfast, Italians want pasta as do the people of other cultures. The Chinese want rice and noodles and the port to flavor it. Americans want everything that can fit in a super-sized market the size of a city block. And they want ethanol for their cars along with corn on the cob for dinner, corn to feed the cattle and whatever proportion of real food is put into fast food.
Where once the then primitive populations who are now referred to as “emerging” wanted enough of their historic staples to survive; they want enough food to enjoy their lives, different foods and even America’s deadly exports of fast food. Here in Chetumal, Mexico on the edge of the jungle in a region just recently emerging from jungle poverty, we now have a McDonalds, Burger King, a few Dominoes and a Sam’s Club. Money is being made and people want that which was denied and that which, a few years ago, was not available here. Ten years ago when I came here it was hard to find olive oil let alone extra-virgen. There was aceite comestible (edible oil) or manteca de cerdo (pig fat) for cooking. Now the supermarket stocks 6-12 brands of olive oil and even oregano oil, pasta from Mexico, Italy, Spain and France, soy sauce from China and Asian noodles.
For farmers it is obviously a gusher or profits as they try to decide how to allocate their seemingly scarce acres to the most profitable crops. Investors vie to move money from stock equities into commodities and commodity-driven stocks.
There is more to the story than just the growing affluence and power of farmers and agri-businesses. There is more than the soaring profits of farm machinery and of agricultural chemicals.
Perhaps most important to the world (rather than just the investment community) is that revolution which is gaining momentum. Watch all the cooking channels and vlogs on cooking. China’s billion people continue to want rice and noodles, pigs and chickens, chiles and spices. They want more of the same and maybe a hamburger now and again. I would not be surprised that many pine for pine nuts to put in the pesto, black olives from Greece and truffles from France.
The most cogent comment in the excellent Times article is “Everyone wants to eat like an American on this globe,” said Daniel W. Basse of the AgResource Company, a Chicago consultancy. “But if they do, we’re going to need another two or three globes to grow it all.”
The next factor has been the demand for foodstuffs to be used for non-feeding of the world’s population — obese or hungry. Ethanol is a case in point. All that corn being used to power vehicles is hard to believe while living in a society that calls itself “the people of the corn”. When the Maya had nearly vanquished the Mexican/Spanish population from Yucatan during the Caste Wars in 1848-49 (which continued into the early 20th c.); the corn god announced the time for planting and the uprising failed when they all went back to their milpas to plant corn, beans and chiles.
Eating seems to be a basic desire that transcends even trade. It is doubtful that it will lose its importance in the near term. The revolution of rising expectations has raised the minimum in most places from bare survival to a full plate and the hope of another meal in the near future. The desire will not diminish but the supply could fall under the onslaught of demand.
For investors it could mean commodities and commodity-based equities will be a place to hide from the avalanche of bad news. It is probably a trend that will continue. But farmers learned long ago that the gods of agriculture are strong and fickle. For now the producers of foods (ADM, CAG, SJM and others), the purveyors of fast foods, convenience foods and the new staples (KO, YUM, KFT, HRL,DM, PAS, MCD) and the agri-chemical and agri-businesses are swinging the weight of rising food prices around.
When you go home the market realm will give way to the new prices for bread, pasta, milk, eggs. Buen provecho!
Photo ©Howard Dratch, 2008. Lunch buffet in a country club in the land of plenty.
Photo ©Howard Dratch. Market vendor in the state of San Luis Potosì.
