Food Will Never Be So Cheap Again

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by Ambrose Evans-Pritchard: HSBC
Bids Farewell to DollarSupremacy

The world’s
grain stocks have dropped from four to 2.6 months cover since 2000,
despite two bumper harvests in North America. China’s inventories
are at a 30-year low. Asian rice stocks are near danger level.

Yet farm commodities
have largely missed out on Bernanke’s reflation rally in metals,
oil, and everything else. Dylan Grice from Société
Générale sees "bargain basement" prices.

Wheat has crashed
70pc from early 2008. Corn has halved. The "Ags" have
mostly drifted sideways over the last six months. This divergence
within the commodity family is untenable, given the bio-ethanol
linkage to oil.

For investors
wishing to rotate out of overstretched rallies – Wall Street’s
Transport index and the Russell 2000 broke down last week –
this is a rare chance to buy cheap into a story that will dominate
the rest of our lives.

Barack Obama
has not reversed the Bush policy on biofuels, despite food riots
in a string of poor countries last year and calls for a moratorium.
The subsidy of 45 cents per gallon remains.

The motive
is strategic. America is weaning itself off imported energy at breakneck
speed. It will not again be held hostage by oil demagogues, or humiliated
by states that cannot feed themselves. Those Beijing students who
laughed at US Treasury Secretary Tim Geithner may not enjoy the
last laugh. The US is the agricultural superpower. Foes will discover
why that matters.

The world population
is adding "another Britain" every year. This will continue
until mid-century. By then we will have an extra 2.4bn mouths to

China and Southeast
Asia are switching to animal-protein diets as they grow wealthy,
as the Koreans did before them. It takes roughly 3-5kgs of animal
feed from grains to produce 1kg of meat.

A report by
Standard Chartered, The End of Cheap Food, said North Africa
and the Middle East have already hit the buffers. The region imports
71pc of its rice and 58pc of its corn. It lacks water to boost output.
The population is growing fast. It will have to import, and cross

The UN says
global farm yields must rise 77pc, which means redoubling Norman
Borlaug’s "green revolution". It will not be easy. China’s
trend growth in crops yields has slipped from 3.1pc a year in the
early 1960s to 0.9pc over the last decade.

the rest of the article

27, 2009

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