Posted on 01/05/2008 10:05:14 AM PST by Dan Evans
BMO strategist Donald Coxe warns credit crunch and soaring oil prices will pale in comparison to looming catastrophe
A new crisis is emerging, a global food catastrophe that will reach further and be more crippling than anything the world has ever seen. The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire, Donald Coxe, global portfolio strategist at BMO Financial Group said at the Empire Club's 14th annual investment outlook in Toronto on Thursday.
"It's not a matter of if, but when," he warned investors. "It's going to hit this year hard."
Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India as well as heavy demand from the biofuels industry.
"The greatest challenge to the world is not US$100 oil; it's getting enough food so that the new middle class can eat the way our middle class does, and that means we've got to expand food output dramatically," he said.
The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year.
Mr. Coxe said in an interview that this surge would begin to show in the prices of consumer foods in the next six months. Consumers already paid 6.5% more for food in the past year.
Wheat prices alone have risen 92% in the past year, and yesterday closed at US$9.45 a bushel on the Chicago Board of Trade.
At the centre of the imminent food catastrophe is corn - the main staple of the ethanol industry. The price of corn has risen about 44% over the past 15 months, closing at US$4.66 a bushel on the CBOT yesterday - its best finish since June 1996.
This not only impacts the price of food products made using grains, but also the price of meat, with feed prices for livestock also increasing.
"You're going to have real problems in countries that are food short, because we're already getting embargoes on food exports from countries, who were trying desperately to sell their stuff before, but now they're embargoing exports," he said, citing Russia and India as examples.
"Those who have food are going to have a big edge."
With 54% of the world's corn supply grown in America's mid-west, the U.S. is one of those countries with an edge.
But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007.
The amount of U.S. grain currently stored for following seasons was the lowest on record, relative to consumption, he said.
"You should be there for it fully-hedged by having access to those stocks that benefit from rising food prices."
He said there are about two dozen stocks in the world that are going to redefine the world's food supplies, and "those stocks will have a precious value as we move forward."
Mr. Coxe said crop yields around the world need to increase to something close to what is achieved in the state of Illinois, which produces over 200 corn bushes an acre compared with an average 30 bushes an acre in the rest of the world.
"That will be done with more fertilizer, with genetically modified seeds, and with advanced machinery and technology," he said.
We just need to stop putting food in our gas tanks.
better buy some beano.
I wish global warming would hurry up, it would create more arable land.
Great topic. saving for later.
We may have to wait a while on global warming.This week a Russian scientist was talking about severe global cooling.
Yes, and a lot of them are Republican, including GW Bush, Mitt Romney, Trent Lott, hundreds of thousands of Republican, tax payer subsidized farmers and their suppliers. They knew it was bad economics in general but were/are willing to screw over the citizens at large in vote/cash trading between them.
And of course, lefties, who believe anything if it's dreamy enough.
And upper mid-west socialist/Swedish/norther European type farmers that like the oh so honest cash supports too and their pandering screw the rest of the county Dem's
So you got both parties in the tank. Farmers playing one party off antoher for cash. Lefty urban dwellers who are clueless and the rest of the world which is getting porked.
Republicrats.
Why is this article post assigned to the ‘Bloggs& Personal’ category? It seems like ‘ongoing news’ and from a newspaper.
The guy in the article is talking about investment opportunities not famine or unavailability of food. The article does not make this clear though.
Lovely, enjoyed, read it aloud to my life. Kudos.
Oh, Oh. $12.50 for a Big Mac?
bump
Malthusians believe that we will have famine unless government interferes. I believe that we will have famine if government requires that we burn food for fuel.
You could say the same thing about crude oil and gasoline. But the supply of crude oil affects the price of gasoline because the costs of a retail product multiply with every middleman in the process.
Doesn't it stand to reason that if we use most of our farmland to grow fuel, we won't have enough food?
It seemed to me that was the gist of the article: government policy is the problem:
"But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007"
Haven't seen any actual numbers. If we actually did that it might be a problem.
yeah, this doesn’t surprise anyone.
SHEEPLE are unprocessed Soylent Green!
:-P
We can always turn our surplus food into fuel; not a very efficient or economical strategy, but workable. It will be somewhat more difficult for the Islamese to turn their fuel into food, and we know that sowing a crop of corn on sand dunes will be just about impossible.
It’s good to be at the top of the food chain and in charge of the pantry.
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