Rice, death and the dollar[Spengler]

Asia Times Online ^ | 22 Apr 2008 | Spengler

[BGHater]

The global food crisis is a monetary phenomenon, an unintended consequence of America's attempt to inflate its way out of a market failure. There are long-term reasons for food prices to rise, but the unprecedented spike in grain prices during the past year stems from the weakness of the American dollar. Washington's economic misery now threatens to become a geopolitical catastrophe.

Months ago, I offered that China, Russia and other cash-rich nations held the antidote to the incipient credit crisis: "If the US wants to remain the magnet for world capital flows it became during the 1990s, it will have to allow the savers of the world to become partners in the US economy, that is, to buy into its first-rank companies."(Western grasshoppers and Chinese ants, Asia Times Online, September 5, 2007.)

No such thing occurred, of course, as Washington has made it clear that it would not allow sovereign funds to own the likes of Citicorp. What are the world's investors doing with the trillion dollars a year they used to invest in American securities, including subprime derivatives and various forms of collateralized obligations that turned out to have more obligation than collateral? They aren't buying American companies because they are not permitted to. They are buying food and other stores of value instead.

Washington has weakened the value of the dollar as a palliative for the credit crisis, so much so that "nobody seems to doubt that the US dollar will lose its status as the world's reserve currency", as journalist Amity Shlaes wrote in an April 9 Bloomberg News column entitled "Monks may hold clue to dollar's future".

[Red6]

I agree.

[the invisib1e hand]

The global food crisis is a monetary phenomenon, an unintended consequence of America's attempt to inflate its way out of a market failure.

BS, plain and simple. The dollar was near lows looooooooong before anything that a hardcore leftist would call a "market failure."

[muawiyah]

Definitely nonsense. Just checking on rice exporting countries (using 03/04 data) the United States was only 10% of the export quantities. That means we do not control the international rice markets.

Viet Nam has a larger share than we do in fact.

[muawiyah]

Again, ridiculous. The actual cause of the rise in world grain prices has to do with the fact the Southern Hemisphere's grain and soybean production crashed over the last year due to cold weather and a shorter growing season.

Just an ordinary famine condition. Nothing to worry about because there's nothing you can do to change it.

The reason you haven't heard about this is that it runs contrary to the Global Warming doctrine.

[muawiyah]

Sorry, the cost of a pound of cement depends directly on the cost of a pound of coal. They burn coal to fire the limestone used to make cement.

[muawiyah]

Virtually 100% of the corn used in ethanol comes from increased levels of corn production ~ and does not dip into our previous grain production levels.

This is a negligible amount anyway, and on a world scale, infinitesimal!

[Red6]

Not the way I see it.

Much of the increase in corn output is at the expense of other crops, and the cost of the bushel of corn has doubled over the last two years. Corn is one of those base agricultural outputs which has a broad application in food, commercially in other products, fisheries, and affects other things like livestock. On a global scale we produce near half the worlds corn output, so when you talk of the 'rest of the world' it's not like they who many are starving, can add that much to the equation.

http://www.extension.iastate.edu/agdm/articles/others/HartJune04fig1.gif

I guess it's just really coincidental that as corn ethanol capacity in the US increases the cost of corn began skyrocketing, even “before” the dollar lost much of its value, even "before" the cost of fuel was as high as it is today.

http://www.willisms.com/archives/corncraze.gif

http://iftf.typepad.com/photos/uncategorized/2007/03/29/ethanol.png

Sorry, I don't buy it. You're giving me the big pie in the sky hand wave. Give me something that makes sense. I'm willing to listen to a good argument, but the shoulder shrug and talk of 'the big picture' isn't one. IMHO, and I'm not in this market, this appears to be a classic case of where demand is pulling up the cost, where it's about guns or butter in so far of corn output vs. other crops, and where subsidies are creating artificial market supplies at a net expense to the tax payer though they are indirect and not obvious to him. Another market inefficiency is built into the system based on some activist agenda, in this case from the right which was bent on ending our 'addiction to oil.'

[muawiyah]

The only part of our grain production that affects the world price consists of that which is exported.

What you're finding at the moment is that several major grain producers, e.g. China, India, Vietnam, Thailand ~ are RESTRICTING EXPORTS.

Their normal export volumes vastly dwarf our own.

When they do this the price of grain in import markets rises.

The reason these countries have done this is actually quite simple. Noting that they've all dealt with famines in the past they recognize that a cool dry season in the Southern hemisphere that results in a loss of the grain crop there is usually followed by a cool dry season in the Northern hemisphere that will also result in a loss of the grain crop.

Rather than face famine the Chinese have simply stopped grain exports.

The net effect has been that crop failures have reduced global wheat on hand from a 60 day supply to a 30 day supply.

Recognizing the problem I've laid in 200 pounds of rice for the coming few months and will probably make a major investment in that product shortly. Definitely gonna' be ready to make sushi Fur Shur.

[Red6]

In basic terms:

http://en.wikipedia.org/wiki/Production_possibility_frontier

There is only so much arable land. You can only use this land for certain crops and often have to cycle it. Certain areas and land is better for certain crops....... you get the picture (Resources are limited). The idea that as corn demand increases the supply will follow and this won't impact any other crops is unreasonable. The fact that others aren't exporting corn was a point I attempted to make and plays into my argument.

When more corn is grown, less of something else is grown. At some point you reach a dead end, where even as the cost per bushel of corn goes up, the output will remain constant because you’re at full capacity. When the demand for corn exceeds the supply at a given price point, the cost of corn increases, and this is indeed what we are seeing with the prices for corn which has more than doubled in two years! Corn is not comparable to Asian Pears. If the cost of the Asian Pear goes up, no big deal; when corn inflates, it’s a big deal. Corn is used as feed for livestock (hogs, cattle, and poultry), fisheries, sweeteners; the starch is used in paper, and even plastics. When the cost of corn goes up, so will the cost of meat at the grocer. That simple. The trend with ethanol is not a free market function. It's artificial, propped up by laws mandating fuel is cut with ethanol and subsidies that that hide the real costs. You have near 1/3 of the US corn output of many states being processed into fuel today, Iowa is a good example: http://www.iowacorn.org/cornuse/documents/HowisOurCornCropUsed-0607.pdf (Over 1/3 in their case.) When I say that corn doubled in price per bushel, I was being conservative (i.e. not using some peak value); the actual cost right now is over $6! In other words the cost of corn has risen by nearly 300% in two years! http://biz.yahoo.com/ap/080403/corn_at_6.html And next year the output for corn is expected to ‘drop’ by 8%, not increase.

We alone export more corn than all other major corn producers on this planet ‘combined!’ http://www.ers.usda.gov/briefing/Corn/trade.htm a nice graphic: http://www.ers.usda.gov/briefing/Corn/gallery/CExports.gif

We are burning our food in our cars not because a free market dictates this is the most economical use of this resource, but because we need to get off ‘our addiction to oil’ and have a gumbermint that is thinking for the market. Screw supply and demand, screw consumerism, long live the state managed economy, and since we don’t directly see the cost (Like many other save the planet efforts) the sheep are willing to accept this nonsense since it also fits into a very vogue fear in oil dependence and anti-Arab perception. Get rid of the laws and stop the subsidies and this nonsense would vaporize quickly because it’s not an economic self carrying system. It’s something essentially others (self carrying economically viable firms and markets) will pay for; and we all already are, in the form of higher food prices.

Do we even disagree? LOL not sure. My point is simple, the ethanol push has ended in a disaster and the gumbermint right about now is eerily quiet on the subject. I wonder why? -IMHO

[muawiyah]

Let's put it this way ~ your presumptions about arable land are in error. First we don't use all our arable land all the time. Some references I found said we've only used 47% of it in recent times, and even less in the past.

Secondly, arable land for one crop is simply not arable land for another. Two cases in point ~ jojoba bean grows best in what otherwise looks like barren desert. Rice, at present, requires flooding. You can't grow jojoba beans in rice country, nor can you grow rice in the desert without water.

Even corn can be variable. Types grown to produce the maximum amount of starch have a different range than those grown to produce the maximum amount of sugar.

Arable land is not a zero sum game.

[Red6]

If land isn’t substitutible for all other uses (something well known) then all that dose is add even more pressure to the cost long term and limits total output because of the entry barriers. When output of given corn yield is pushed to ethanol, you have less potential to increase total output even if you wanted too, and that creates a ‘long term’ problem. Land stays unused intentionally and that too has to be factored in. There is a reason why you have CREP and other programs, and stating that land sits idle is like saying you sleep. Land will never run at 100% utilization and stating that we simply increase output by increasing utilization is like demanding people to no longer sleep since they could work during those hours. You’ll destroy cropland if you over utilize it. Nonetheless some of the land that was used for other crops is already being used for corn or am I wrong? http://www.ers.usda.gov/Briefing/Baseline/gallery/gallery2008/AreaCWS.gif

http://www.ers.usda.gov/Data/FeedGrains/StandardReports/YBtable16.htm (Why do you think the cost for feed is increasing? Maybe that word used in economics called- ‘demand’ could be behind this?) 1/3 of our nations corn is going into our gastank.

“Arable land is not a zero sum game.” Zero sum: A gain or loss is exactly balanced by the losses or gains of the other participant(s). Yes, that definition would be valid. This is indeed a zero sum game and the price of corn exploding kind of proves that.

[muawiyah]

Corn production is up enough to cover the ethanol needs. At the same time the Global Warming crowd led our government and all grain producers worldwide that it was getting warmer ~ and that means no further risk from a cool dry summer that destroys crop yields in the Southern Hemisphere.

Yup, it's all Algore's fault. People are going to be dying because of his propaganda.

You'll notice that "W" "came 'round" to the GW stuff just in time to forget that if a crop loss occurs we probably ought to tend our resources a bit to prevent inflationary price increases.

In the end this is only going to get worse as the world's climate cools down and dries out as we rush headlong into the next glaciation cycle. We will be roasting and toasting the Liberals before it's over.

[an amused spectator]

Some good points in your post. I especially like #5 - declare an energy crisis. The incompetent boobs in Washington have ass-clowned it, again. Diesel's over well over $4 a gallon where I'm at - do they think freight shipping runs on air? Idiots.

as 78 million mainly educated boomers leave the work force

Not when they find out their retirements funds have been raided by the government's inflationary policies. I've been theorizing for some time that the goobermint was going to go after that pot of money in the retirement portfolios - I just didn't realize how audacious (and brilliant! - they didn't get ANY on them) their method was going to be.

I thought they'd have to do something stupid like taking a 5%, 10% cut right out of the money pot. This way, they didn't do a thing...

[Spengler]

I am not anti-American. I am pro-American. I supported the invasion of Iraq (but not the nation-building disaster). I have argued for a pre-emptive strike against Iran. However, when America shoots itself in the foot, I will say so. As for ethanol, drought, and rice: there is very little substitution between rice and other grains. To the extent that the weak dollar pushes up oil prices, that will also affect the price of ethanol and hence corn, etc. There is no rice shortage. Thailand, the largest producer, had a record crop, and (as I said) world price production is at a record. Thailand, the US, and other producers easily can augment production. Thai farmers can if needed produce three crops a year; the state of Louisiana alone probably could feed the world. That is what makes this situation so alarming. It is the first global food shortage in the midst of plenty.

[quant5]

Good points also!

[an amused spectator]

I think some of the other posters were whacking on your original article, but I wasn't guilty of that.

I actually thought your article was a good one, and brought up some good points to be reflected on.

Thanks for the info on world rice production, BTW.