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And if reserve-rich China, usually self-sufficient, goes into the world market to buy millions of tons of wheat, the price of wheat can rise to an arbitrarily high level.
There is a root cause to the Egyptian uprising, as I wrote last week (Food and failed Arab states,February 2), and it is not Israel, but China: prosperity in Asia creates inelastic demand for grain, such that a minor supply disruption such as the 2010 droughts in Argentina and Russia causes huge price increases. American economist Larry Kudlow observes as well that ethanol subsidies artificially inflate grain demand as well, contributing to the present price spike.
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My comments
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American economist Larry Kudlow observes as well that ethanol subsidies artificially inflate grain demand as well, contributing to the present price spike.I want to argue with that claim....
Ethanol does NOT use wheat ....
The areas that can grow wheat and corn ( which is used) generally will grow soybeans or corn...
Winter wheat country is predominately not irrigated...and not good for either corn or beans.
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Wonder how the winter wheat crop is looking back home.
Those protesters are going to be pissed off as their means of growing food dwindles and the general cost of food world wide increases.
The winter wheat in my area could sure use some good moisture. It did get some snow cover to protect it from the recent severe cold, which is something.
Actually, the problem of increased demand for corn does get passed on to wheat and any grain that can be fed to livestock and poultry. China, as a primary case, consumes far more meat, mostly chicken and pork, although a taste for beef is growing, than it ever did before.
If corn costs too much, livestock producers will substitute another grain, even and including wheat. This drives demand, which raises the price for all grains. While indirect, a raise in corn prices has a profound affect on all grain prices. I’ve even heard that some folks are using more potatoes, sugar beets and mangels for livestock feed. So even those items go up in price.
Any government meddling in the commodities markets will have a domino effect on all the rest. When corn prices are artificially inflated and purchased for non-edible reasons, first it leaves a void that some other grain will have to fill, and secondly, more land will be devoted to corn production because of the higher return resulting in a net loss of acreage for other crops.
Save the corn for whiskey and tortillas!