2010 crop yields will send food prices higher

[opsec]

http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/7929101/Price-of-bread-could-hit-record-after-Russian-wheat-export-ban.html

Keep in mind the interconnected nature of the world's food supply. The bag of Dorito's you buy at 7-11 could easily be made from corn grown in some other country. Things that happen over there send prices upwards everywhere.  The world's food supply is becoming one big JIT delivery system. The achille's heel of the JIT delivery system is that it is not fault tolerant. If one part of the JIT system malfunctions, that can send cascading failures downstream much like a chain reaction pile-up on the highway. Right now America's grain reserves are at an historic low.

Price of bread could hit record after Russian wheat export ban

According to the Office for National Statistics, the average price of a loaf of sliced bread in Britain is £1.19. It was a mere 65p five years ago but shot up during the crisis in food prices during 2007 to 2008, when a similar set of poor harvests, this time in Australia, caused the global price to rise. This in turn set off a series of inflationary spikes in commodities.

Mr Putin appears to have acted after meteorological experts issued further drought warnings, raising fears that the ground would still be too hard next month to seed the winter crop.

The loss of two crops would force Russia to withdraw from the global export market altogether for up to two years.

http://www.businessweek.com/news/2010-08-05/wheat-soars-to-23-month-high-as-drought-hit-russia-bans-exports.html

Wheat Soars to 23-Month High as Drought-Hit Russia Bans Exports

Halting shipments would be “appropriate” to contain domestic prices that jumped 19 percent last week, faster than at the peak of the global food crisis in 2008, Russian Prime Minister Vladimir Putin said in Moscow. A government decree signed today bans exports of wheat, barley, rye, corn and flour from Aug. 15 to Dec. 31.

Wheat for December delivery rose 59.75 cents, or 7.9 percent, to close at $8.1525 a bushel at 1:15 p.m. on the Chicago Board of Trade. Earlier, the price advanced by the CBOT’s 60-cent limit to $8.155, the highest level since August 2008.

Wheat reached a record $13.495 in February 2008, part of a surge in prices that sparked food riots from Haiti to Egypt.

http://www.businessweek.com/news/2010-07-30/canada-wheat-output-to-fall-17-after-excessive-rain.html

Canada Wheat Output to Fall 17% After Excessive Rain

Canada, the world’s second-largest wheat exporter, will harvest 17 percent less than a year earlier after unusually wet weather prevented seeding in some areas and damaged plants, the Canadian Wheat Board said.

Spring-wheat futures for December delivery rose 24 cents, or 3.6 percent, to $6.9725 a bushel at 11:56 a.m. on the Minneapolis Grain Exchange. The price has surged 36 percent this month as prospects dimmed for Canada’s crop and a drought threatens to reduce grain output in Russia.

http://finviz.com/futures_charts.ashx?t=GRAINS&p=d1

The meteoric rise in prices is only the beginning. Eventually, there there will come a point at which food can't be bought at any price simply because there isn't any. If you haven't started storing food yet, check out the sticky posts at the top of this forum for ways to get started for cheap.

[hancocs]

This give new meaning to a quote " A piece of bread could but a bag of gold, I wished we all been ready".

[Mike]

The Russian grain crop is in a bad way.

And what is the Russian 'solution'?

(It is non-market.  It is statist.)

! Ban exports!

Even though, 'this is Russia', it is a good indication as to how things are going to be dibbied-up when TSHTF.  Even in America, chances are things will be dibbied up with chits and rationing coupons.

Markets will be denied price-signals.  Producers will instead get centrally planned incentives.

*****
What Russia should do is let farmers sell their wheat to whoever will buy it for whatever price the farmer can get.  If necessary, millers and bakers will have to pay higher prices; world prices. 

Those Russian farmers who had pivot irrigation.... and a normal harvest will have a windfall!  They will look like geniuses, and maybe buy more irrigation equipment.

****
By banning exports, it looks to me like the Russian government is trying to stiff the few farmers who might have had a harvest.

[Tom Wagner]

So many countries seem to ban exports if they have a bad crop...sure makes the market forces a nolo contendre from the wheat growers in Russia's plight.

http://news.yahoo.com/s/afp/20100805/ts_afp/russiaheatwavefiresfarmcropscommoditiesgrain_20100805162243

Russia, the world's third wheat exporter, Thursday banned grain exports for the next four-and-a-half months due to a record drought that has destroyed millions of hectares (acres) of its land.
Wheat futures shot up to new two-year highs on commodities markets after the sudden announcement from Prime Minister Vladimir Putin raised concerns about global grain supplies.
"In connection with the unusually high temperatures and the drought, I consider it right to impose a temporary ban on the export from Russia of grain and other products produced from grain," Putin told a government meeting.
Russia earlier this week slashed its 2010 grain harvest forecast to 70-75 million tonnes, compared with a harvest of 97 million tonnes in 2009, owing to the worst drought for decades.
Last year, Russia exported 21.4 million tonnes of grain and observers had already warned that could be sharply lower this year owing to the drought.
The prime minister's spokesman Dmitry Peskov said the export ban would come into force August 15 and remain in place until December 31.
http://www.allbusiness.com/agriculture-forestry/agriculture-crop-production-oilseed/14031051-1.html Old data from January of this year.The US dominates global wheat exports, accounting for between one-fourth and one-fifth of global wheat trade over the past five years. However, in spite of the fact that the country remains one of the world's largest wheat producers, its dominance of the export market appears to be in decline.

The statistics for wheat production seems to vary from whichever site one visits  Two of them here

Top wheat producers

1.   China … 96.2 million tonnes (15.4% of global wheat production)
2.   India … 72 million (11.5%)
3.   United States … 57.1 million (9.1%)
4.   Russia … 45.5 million (7.3%)
5.   France … 36.9 million (5.9%)

and here:

2006/07 Top Ten Wheat Producing Countries
   MMT (million metric tons)

   1. EU 124.7
   2. China 104.0
   3. India 69.3
   4. U.S. 49.3
   5. Russia 44.9
   6. Canada 25.2
   7. Pakistan 21.7
   8. Turkey 17.5
   9. Argentina 15.2
   10. Iran 14.8

As late as last January, the USA predicted lower prices.  Nothing like a little bit of reality to hit.
As a fifth generation wheat farmer from Kansas, crop prices seemed to always be mostly poor...so much that I could not continue being a farmer back home.  I am about to get back into wheat by doing research looking for special strains that make growing grain that resists diseases and has better eating quality.  By growing out small samples to increase the seed is my way of looking out for survival foods.

Tom Wagner

[Atash Hagmahani]

crop prices seemed to always be mostly poor

It seems as though even though demand for food is relatively inelastic, farmers often seem to lack pricing power. I am not familiar enough with the market channel to understand why this is. It might have something to do with financial intermediaries that have deeper pockets.

One of the interesting side-effects of globalization was a certain amount of stabilization of commodity prices. If one country had a crop failure, another one might very well have had a bumper crop. So global sales and import/exports helped stabilize prices. This time the situation was so tight, and so "just in time" as Opsec pointed out, that the globalization effect won't save the day.

The good news for farmers this time is that the situation is so bad, anybody with a crop (like a certain farmer we know who'd jolly well get his wheat harvested and cleaned out) to sell should see some benefit. Even better, the inflation that Offdalip is predicting happens after the current deflation is over will cause food prices to rise and the value of farmer debt to fall.

During the Weimar republic, German farmers paid off their debts literally with "egg money". They'd sell surplus eggs and pay off their debts in massively debased money. And since they were growing their own food, they were not walloped as bad as people in the city. So while they probably did not benefit overall, they were hurt much less.

My prediction this time is that overall system failure--like the lack of loans for equipment and seed, the lack of private capital (says one running on a shoestring himself), a lot of suppliers going bankrupt, and so on--means that it will be hard to get more production online.

So, I predict a bull market in wheat and other key staples to continue for a while.

[Mike]

According to a farmer-friend, "The Merchants of Grain" is a short definitive book on the grain market & its history.  (I haven't read it.)

http://www.amazon.com/Merchants-Grain-Profits-Companies-Center/dp/0595142109

Editorial Reviews
Review
Cargill, Continental, Louis Dreyfus, Bunge, and Andre - who would have recognized these names before the 1972 Russian wheat coup? But the five major grain companies not only control the international trade in everything from cooking oil to animal feeds, Washington Post reporter Morgan discovered; they also operate as the private fiefdoms of seven all-powerful families. Morgan starts with some 1975 Russian wheat deals (In scenes that might have been lifted out of a thriller), then flashes back to chronicle the growth of the grain trade from British industrialization and repeal of the Corn Laws forward. The stroke of repeal "opened England to the wheat of the world"; prompted settlement of vast territories in Russia, the Argentine, Australia, the American West; and sent shrewd traders from the commercial Rhine - several of them Jews, barred from established occupations, and all from close-knit families - out to Bessarabia or Minnesota, "where surpluses were a problem as early as 1860." It's a feature of Morgan's engrossing book that he does well by these globe-girdling, globe-shrinking buccaneers - even as he documents, in later days, their connivance with the U.S. government to solve the perennial grain-surplus problem by inducing everyone to eat like Americans. But equally important in tipping the balance from excess to shortage was Khrushchev's 1962 decision, for the first time in Soviet history, to compensate for a poor harvest by buying grain abroad: "Henceforth, the Soviet Union would be the 'X' factor in world grain markets." By 1972, the Russians too were buying grain not to bake bread but, in the American way, to feed livestock; and with the dollar shrinking and the balance of payments deficit soaring (not, says Morgan, because of "corporate lobbying"), Nixon decontrolled grain exports to Russia, setting the stage for the massive inflationary sales of 1975. Morgan carries the story through the trafficking of Tongsun Park, whose rice link he and a colleague uncovered, and the fall of Cook Industries, the one big public company. Altogether, he's managed an exemplary synthesis that gives us the whole world in a grain of wheat. (Kirkus Reviews) --This text refers to an out of print or unavailable edition of this title.
Product Description
The first and only book to describe the seven secretive families and five far-flung companies that control the world's food supplies. Little has changed their central role since Morgan's best-selling book first appeared in 1979.
See all Editorial Reviews

[The Future]

make wheat the new oil and launch a war with...oh. never mind.

[Lore]

I was given a copy of Feeding The Few: Corporate Control of Food many years ago by a grain farmer who referred to Cargill as "Satanic."  The author distinguishes between an idealized New International Economic Order and the rising New Imperialist Economic Order (NIEO), characterized by takeover of Third World food production by "powerful nations of the North, led by the USA." The book offers a cynical but still-vital primer on Agribusiness. Like Mike's book, it's short and affordable.

[silverseeds]

I was given a copy of Feeding The Few: Corporate Control of Food many years ago by a grain farmer who referred to Cargill as "Satanic."  The author distinguishes between an idealized New International Economic Order and the rising New Imperialist Economic Order (NIEO), characterized by takeover of Third World food production by "powerful nations of the North, led by the USA." The book offers a cynical but still-vital primer on Agribusiness. Like Mike's book, it's short and affordable.

Its been a long time but I believe that is the book I read on the subject years ago. It is near impossible to deny this happened when you see the shape of these things. which is why we never hear of it in the general sources of information.

So why? Profit only? that does not appear to be the case because in some instances it seems like they lost capitol. just to get the control of the system established. so it is clearly something much more nefarious.

Its bigger then that though. it has not only been food, but also economies and water, and other things. through the IMF, the ones poised to run the new global reserve currency. some might point to the fact this got us cheap goods over the years, and is U.S. funded, but long term this has been nowhere near a benefit for our country.

[Atash Hagmahani]

I think there are a couple of agendas going on. One is to cartelize food, on the assumption of it becoming an increasingly strategic resource.

Another is the assumption of "economies of scale", which I do not believe works the way they think it does. I suspect that there is a maximum efficient size, that after which, any more growth results in "declining returns".