In 2007, wheat prices rose 90%, soybeans were up 80% and all other soft commodities started charging higher. But don’t be intimated by the gains so far. These softs are not overvalued. In fact, they are set to go much, much higher over the next few years.
So, if you are not invested in agriculture now, I think you may live to regret it.
The US Department of Agriculture (USDA) now expects wheat inventories in the country to fall a staggering 40% by June this year…. This would leave wheat stocks at their lowest level in 30 years – and the lowest ever in terms of days of supply – according to Merrill Lynch. World barley stocks are expected to hit a 42-year low.
Globally, grain stockpiles fell to about 53 days of supply last year, the lowest level since record-keeping began in 1960.
The USDA forecast that US wheat harvests could rise to 2.3 billion bushels from 2.1 billion bushels last year, but corn production looks set to ease to 12.8 billion bushels from 13.1 billion bushels last year. With US corn output likely to fall this year and demand from government targets on biofuels increasing, the price of corn looks set for a good 2008 as well.
All these rises are driven by three factors: population growth, increasing affluence and financial incentives to set aside arable land for growing fuel.
It’s not just that there are more mouths to feed; it’s about increasing wealth. When a society gets more affluent, it eats more meat. It takes a lot of grain to fatten a pig and truckloads of grain for cattle.
Soaring demand and falling inventories can mean only one thing – rising prices. Food inflation is going to be one of the dominating themes in investing over the next ten years – and it is still not too late to position yourself in this trend.
Food inflation is expected to rise by 7.5% each year for the next five years, well above the 2.3% average of the past 10 years. This is not taking into account any “unforeseen” events such as bad weather or water shortages.
Bill Lapp, a former economist for US food giant Conagra Foods has said he thinks food prices are moving to a new plateau similar to what happened around 1914, and again after World War Two and then in the 1970s.
What this means for you and me is that the price of your shopping is going to increase significantly – and your investments in agriculture should grow as well. What this will mean in some countries, however, is food riots and famine…. And it’s started already…
On 17 December, The UN’s Food & Agriculture Organisation (FAO) said that 37 countries were currently facing food crises due to conflict, disasters and soaring prices.
The FAO estimated that the total cost of imported foodstuffs for what they romantically call Low Income Food Deficit Countries in 2007 would be some 25% higher than the previous year, surpassing $ 107 billion.
This article is taken from Garry Whites free daily email ‘Garry Writes’.