Monday, June 18, 2007

We might need a sub-prime mortgage to buy Bread, Milk, and Eggs…

It has been my assertion that one of the market signals indicating the approach or the arrival of Peak Oil will be rising prices of foodstuffs and agricultural products.

Last week the price of wheat rose 18%, and is up 72% in the past 12 months. The price of corn rose 9.7% last week, and is up 80% in the past 12 months.

Mind you, these price increases have occurred while ethanol still represents less than 2% of our liquid fuels. Now contemplate grain prices if President Bush succeeds in his “20 in 10”, in which ethanol is being called upon to make up nearly 20% of our liquid fuel needs (I guess the good news is that that ain’t never gonna happen).

Milk prices have surged nearly 60% since last spring:

“A worldwide shortage of milk means dairy farmers in Vermont and elsewhere are likely to receive record paychecks for their milk this year, according to the region's largest dairy cooperative.

"We see prices to be very strong for the rest of the summer, fall and early 2008 for the farmer," Agri-Mark spokesman Doug DiMento said. "We're expecting prices to be in the $20 (per hundredweight) range and above for the rest of 2007."

For 2008, prices are more difficult to project, but DiMento said expectations are that prices will remain in the $20 range.

That's a big improvement from May of last year when the Boston market price was $12.61 a hundredweight, DiMento said. He noted, however, that because of Vermont's distance from Boston, farmers here received approximately 63 cents less per hundredweight – or $11.98.” – Bruce Edwards, Rutland Herald

I am happy for the farmers, but I doubt the holders of U.S. debt will be too happy if this should continue. The U.S. federal government can obfuscate the true reporting of inflation only so much. Food and energy inflation may well overwhelm that obfuscation.

The decrease in overall availability of oil and natural gas, and its concomitant increase in price will at some point, in my opinion, decrease overall factory food production and increase the price of their products – and I believe it is likely that we are seeing the beginning manifestations of that now. If, in fact, this is only the beginning… what are the ramifications of $12 per gallon milk, $10 per dozen eggs, and $8 for a loaf of bread when it costs $200 to fill up Soccer Mom’s minivan? What if food price inflation does not stop there? And what will the reset be for Soccer Mom’s adjustable rate mortgage? Interest rates would by necessity move significantly higher in the environment envisioned here.

On a long enough timeline the probability of these events rises to a near certainty. The debate is really about the timeline, and that timeline has everything to do with the volume of exportable oil available to the U.S. to import. My apologies if it appears that I am U.S. centric but, a: this is where I buy my food, and b: The U.S. is the largest agricultural exporter in the world. The effects felt here for these products will be magnified around the globe.

My brother asked me if we couldn’t overcome the problem with WWII era victory gardens. At first I thought he was silly - now I think him prophetic. American’s do not need to grow ALL of their personal food, just some of it. It is the marginal demand increase or supply shortfall that is the issue (well, sort of ). If every household had a good sized garden and some fruit trees, they might be able to produce 10 or 20% of their vegetables and fruit, and grains are not hard to grow, either. Over time, as oil supplies decline and the impact on factory agriculture accelerates, there is also the opportunity for people to increase their own personal production, as their skills increase over time. There might even be an opportunity for an enterprising soul in all of this.

Of course, impacts on the current economic structures and on our personal life styles are another matter entirely. How many white collar American’s can envision being responsible for growing enough food – or else? Still, as I have said in many previous posts, American’s will remain much more interested in eating than in driving.

Yours for a better world,

Mentatt (at) yahoo (dot) com

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