China Drought Global Food Crisis To Trigger Many More Egypts

The Chinese government has reportedly decided to spend $1 billion to battle the drought plaguing huge areas in the north, as wheat prices continued their climb and the UN warned of serious consequences for the winter harvest.

The drought is the worst in six decades in many areas, and has left a swathe of grain-producing regions reeling from a lack of any significant rainfall in more than three months.

The money will be spent to divert water to affected areas, construct emergency wells and irrigation facilities, and take other measures, the State Council, or the Cabinet, said in a statement on Wednesday after an executive meeting chaired by Premier Wen Jiabao.

The move was included in a 10-measure package to spur grain production and tackle the persisting drought, which poses a grave threat to wheat production.

Eight major grain-producing provinces, including Shandong, Jiangsu, Henan, Hebei and Shanxi, have been affected. Together they produce more than 80 percent of China’s winter wheat. By Wednesday, a total of 7.8 million hectares of winter wheat had been affected by the drought in the eight provinces, accounting for 42.4 percent of their total wheat-sown area, according to the Ministry of Agriculture.

The State Council warned the situation could worsen, saying rainfall across northern China for the foreseeable future would remain “persistently below normal levels and major rivers will continue to be generally dry”. Some 2.57 million people and 2.79 million livestock are suffering from drinking water shortages, official figures showed. The UN’s Food and Agriculture Organization (FAO) also issued a warning on Tuesday over the impact on the winter wheat crop.

The situation in the regions could become critical if temperatures dropped further this month and a spring drought followed the winter one, the FAO said. Footage from CCTV on Wednesday showed withered crops in parched farmland in Shandong. Wheat prices in China have also been rising rapidly in the last few months. Average flour prices in the country rose more than 8 percent in January from the previous two months, the FAO said.

Wheat futures have started to rise and a near 50,000 long positions have been built up which is a 6 monthly high. Refer our post : Food inflation: The story of 2011 where we analysed that Wheat will retrace and touch 1300 once again. The fundamentals drivers behind Wheat are very strong and will drive prices.

Refer our previous articles on food inflation where we have dealt with Wheat futures, below:

Rice has been a major worry as prices have expanded triggered by short supply from Brazil and South East Asia. COT position imply rising trader position for a rise in prices. FAO recently has though opined that there has been a moderation in prices in January but it can be attributed to a mere consolidation before further rise

All Rice index has marginally corrected to 253 in Jan 2011 from 256 in Dec 2010 but we expect 290 levels in 2011.

Political unrest has broken out in Tunisia, Yemen, Egypt and other Arab countries and the underlying reasons for it has been the rising food prices. The Food and Agriculture Organization of the United Nations says its global food price index is at a record high, above even where it stood during the last food crisis three years ago.

Rising prices are “leading to riots, demonstrations and political instability,” New York University economics professor Nouriel Roubini said during a panel discussion. “It’s really something that can topple regimes, as we have seen in the Middle East.”

While traditionally, food-price crisis reflects the simple law of supply and demand. The supply of food has been diminished by bad weather in many crucial crop-growing areas of the world. Russia, Ukraine and Argentina have had severe droughts, while Pakistan and Australia have had massive flooding. This when combined with the fact that demand has been growing in south asia, have let food prices rise. Adding fuel to fire has been the US FED which with their ultra loose monetary policies have allowed capital to flood the markets allowing food and all commodities priced in dollar to be rising in prices.

In the long run, economists say the only real solution will be to increase the supply of affordable food.

Given the drought in China, Chinese authorities are then planning to import Wheat and Rice to feed its billions. China has the purchasing power and can move in fast to deplete world supply in a very short period of time. This will act like dynamite to volatile food trading market which can potentially rise very fast.

Expect further traction in food prices in 2011 and 2012 even with FAO suggesting higher Wheat and Rice production.

More than 41 million US citizens depend on food stamps which is nearly 12% of the population of the country.

A staggering 42,389,619 now use food stamps, up 58.5 percent from August 2007, according to U.S. Department of Agriculture data from August.

The findings translate into nearly 14 percent of American households are still relying on government assistance to buy food as the economy continues to falter. The total was up 1.3 percent from July.

The demand for food stamps is expected to remain high throughout the country as the unemployment rate hovers near 9 percent in 2011, gradually falling to 8.2 percent by late 2012 and reaching the “natural rate” of 5.3 percent only in 2016, according to the Congressional Budget Office.

With rising prices, the numbers on food stamps are only going to rise and forcing government to procure even more. Only a matter of time before we see the system break and riots to break out in the US. A Greece and an Egypt are going to come to the US. While Greece represents the debt rollover issue while Egypt will be the citizens revolt against a wild and mediocre government.

Global Food Crisis, Time To Buy Rice Futures

Jack Barnes writes: The world is finally waking up to the fact that global grain prices are destined to head higher - much higher.

Nasty weather in key agricultural markets around the world has savaged the global grain crop, meaning worldwide supplies can't help but be squeezed. Australia, for instance, is experiencing additional flooding in areas that were already battered by the torrential rains of November, December and January.

And as if the supply-related increase in agricultural commodities wasn't enough, there's also the U.S. dollar - and the so-called "race to the bottom" - to contend with. Make no mistake: The endless devaluations in the greenback are having a worldwide impact on agricultural commodity prices. Since commodities are priced in dollars, these devaluations translate into higher prices for grains and other food-related commodities.

[snip]

Commodities Continue To Hit New Highs

by: Calafia Beach Pundit
February 10, 2011

The above charts represent the two major components of the CRB Spot Commodity Index. Commodity prices continue to head skyward across the board, with most commodities hitting new all-time highs.

Arab Light Crude, flirting with $100/bbl, is now clearly higher in real terms than it was in the early 1980s. At this level, further price increases should begin to curtail demand, while also stimulating new sources of supply. But we are still well below the levels that might provoke a significant slowdown in economic activity, thanks to technological advances and energy conservation efforts.

Rising commodity prices continue to attest to a) strong global demand, and b) speculative activity fueled by easy/cheap money. Commodities are becoming increasingly vulnerable to any sign that monetary policy may begin to reverse course and seek to push short-term interest rates higher. I don't think this is imminent, but it is the clearest source of risk for commodity investors.

However, North America last year came VERY close to its own wheat crisis--it was fortunate that a drought-like situation in the US Midwest only affected the corn crop, but the "hit" was relatively mild.

The major fear right now is that if every wheat-growing region worldwide suffers from either drought or flooding in 2011, food prices WILL skyrocket and the real possibility of wheat rationing could become reality.

It's always something, eh?

A 'Time Bomb' For World Wheat Crop

The Ug99 fungus, called stem rust, could wipe out more than 80% of the world's wheat crops as it spreads from Africa, scientists fear. The race is on to breed resistant plants before it reaches the U.S.

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