Friday, October 13, 2006

Grains, Brain’s, Heat, Meat, Land & Sam I am

"Facts do not cease to exist because they are ignored." - Aldous Huxley

The price of wheat is up 55% in less than 1 year, and all I hear anybody talk about is how expensive gasoline is and where is the price of gas headed... Doesn’t the average American family spend more on food than gasoline? What’s going on here?

Here is an interesting statistic and “fun fact to know” brought to you by yours truly (with help from the U.S. Dept. of Labor): in 1920 the average American family spent over 50% of their income on food. In 2004, that same family spent “only” 18% of their income on food. What happened during those 84 years to bring down the price of food per income $? Hydrocarbons happened. We use hydrocarbons to fertilize, pesticide, sow, irrigate, harvest, store, transport, process, refrigerate, and finally cook our agricultural output. It is estimated that more than 80 cents of every food dollar is to pay for the hydrocarbon input. But I digress…

The price of wheat was “lock limit up” 3 days this week in the Chicago Board of Trade. Corn prices are soaring, too. Wheat, corn, along with rice, directly and indirectly as animal feed, supply the majority of mankind’s caloric intake. So why haven’t we heard politicians pouring out their usual vitriolic rancor at… “Greedy” farmers? Heck, we’ve got “greedy” oil companies, “greedy” healthcare “profiteers”, and certainly we have heard form a few “greedy” politicians. Somehow I just don’t see those same politicians heaping their ire atop of some Norman Rockwell-esq farmer’s co-op.

One of our client’s manages a pork-processing company’s “live production field” out West. I asked him if this would affect the price of meat significantly. He replied that 55% of the costs associated with pork production is feed.

So, we have a big problem in the making, and perhaps an opportunity.

I think the following quote lays out the problem fairly succinctly:

“For the sixth time in the past seven years, the human race will grow less food than it eats this year. We closed the gap by eating into food stocks accumulated in better times, but there is no doubt that the situation is getting serious. The world's food stocks have shrunk by half since 1999, from a reserve big enough to feed the entire world for 116 days, then to a predicted low of only 57 days by the end of this year.

That is well below the official safety level, and there is no sign that the downward trend is going to reverse. If it doesn't, then at some point not too far down the road we reach the point of absolute food shortages, and rationing by price kicks in.” - Gwynne Dyer

Mr. Dyer was speaking of wheat. The corn situation is much worse, in terms of remaining day's supply.

"The crop is pegged at 10.905 billion bushels, 1.9 percent smaller than forecast in September, the USDA said. A crop of that size would also be 1.9 percent smaller than a year ago. Projected U.S. inventories before next year's harvest will be less than 31 days of use. Global reserves will fall to the lowest since 1984, the USDA said." 10.13.06

I had covered the shortage of grains in a previous post, so lest you think I just shipped out to the department of redundancy department… I didn’t. I thought the above quotes needed to be heard (read?). I wanted to point out that we are consuming food faster than we are producing it by digging into inventories, our food savings account. But unlike, money, we cannot borrrow food. Soon we will be consuming liquid fuels faster than we can extract it (I hate to use the word “produce” when discussing oil. G-d produced the oil - we merely extract it). I am convinced that if the trend in food production versus consumption continues for another year or two…

1. We will suddenly find the "Brains" and the “political will” to address “global warming”
2. The value of certain Real Estate assets will plummet
3. The value of certain Real Estate assets will rise
4. Financial Markets will experience a seismic shift, punishing some and rewarding others

This is no Dr. Sueues tale. These issues are coming at us, right here, right now. Discounting these MEGA ISSUES might have serious, negative effects on your net worth. They might, in fact, create fantastic opportunities. But you gotta think out side the box like you never have before.

Mentatt “at” yahoo “dot” com

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