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Gregor Macdonald
Preparing for Higher Food Prices
by Gregor Macdonald, contributing editor
Tuesday, January 3, 2012
Executive Summary
- How urbanization is accelerating the loss of the world’s arable land
- The three major trends that will impact global food prices and potentially create even more volatility in the next few years
- How virtual water introduces a new threat of resource conflicts
- Why our government’s actions to revive the economy translates into higher prices for food and other hard assets
- Why greater volatility in food prices lies ahead
- Defensive strategies against higher food prices
Part I: A Punch to the Mouth: Food Price Volatility Hits the World
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: Preparing for Higher Food Prices
Close-up: The Loss of Arable Land Per Capita
Recent data from the World Bank shows that arable land per capita has been declining globally for 40 years. This has been true in most countries, especially the juggernauts of India and China. But we have compensated for that decline with fertilizer. As Julian Cribb points out in his book (page 72), it has been asserted that “over two billion people would not be alive today, were it not for the invention of the industrial process for making nitrogen fertilizer.”
Indeed, we know that 2008 was an important milestone in the history of humankind: That was the year that the majority of the world population, for the first time, lived in urban centers. The rapid urbanization — and therefore loss of farmland — in Non-OECD countries may have produced wonderful stock market returns for the past two decades as developed-nation capital hooked in to such rapid growth. However, it is not clear that this process has upgraded humanity’s overall quality of life. Energy inputs do upgrade diets. And energy inputs also can reduce the suffering of burdensome, human-powered labor. But the associated pollution and environmental destruction exacts a heavy price for such a transition.
Preparing for Higher Food Prices
PREVIEW by Gregor MacdonaldPreparing for Higher Food Prices
by Gregor Macdonald, contributing editor
Tuesday, January 3, 2012
Executive Summary
- How urbanization is accelerating the loss of the world’s arable land
- The three major trends that will impact global food prices and potentially create even more volatility in the next few years
- How virtual water introduces a new threat of resource conflicts
- Why our government’s actions to revive the economy translates into higher prices for food and other hard assets
- Why greater volatility in food prices lies ahead
- Defensive strategies against higher food prices
Part I: A Punch to the Mouth: Food Price Volatility Hits the World
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: Preparing for Higher Food Prices
Close-up: The Loss of Arable Land Per Capita
Recent data from the World Bank shows that arable land per capita has been declining globally for 40 years. This has been true in most countries, especially the juggernauts of India and China. But we have compensated for that decline with fertilizer. As Julian Cribb points out in his book (page 72), it has been asserted that “over two billion people would not be alive today, were it not for the invention of the industrial process for making nitrogen fertilizer.”
Indeed, we know that 2008 was an important milestone in the history of humankind: That was the year that the majority of the world population, for the first time, lived in urban centers. The rapid urbanization — and therefore loss of farmland — in Non-OECD countries may have produced wonderful stock market returns for the past two decades as developed-nation capital hooked in to such rapid growth. However, it is not clear that this process has upgraded humanity’s overall quality of life. Energy inputs do upgrade diets. And energy inputs also can reduce the suffering of burdensome, human-powered labor. But the associated pollution and environmental destruction exacts a heavy price for such a transition.
by
Gregor Macdonald
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Perfect Storms
2011 was an abysmal year for the global insurance industry, which had to cover yet another enormous increase in damages from natural disasters. Unknown to most casual observers is the fact that during the past few decades the frequency of weather-related disasters (floods, fires, storms) has been growing at a much faster pace than geological disasters (such as earthquakes). This spread between the two types of insurable losses has moved so strongly that it prompted Munich Re to note in a late 2010 letter that weather-related disasters due to wind have doubled and flooding events have tripled in frequency since 1980. The world now has to contend with a much higher degree of risk from weather and climate volatility, and this has broad-reaching implications.
And critically, it has a particular impact on food.
Many factors seen over the past decade have produced higher food prices: population growth, urbanization, the decline of arable land per person, and the upgrading of diets for example. But more damaging than food inflation has been the pushing of global food prices out of their long, quiet envelope of stability. From the recently released UN Report on the World Food Situation:
A Punch to the Mouth: Food Price Volatility Hits the World
by Gregor Macdonald![src=]()
Perfect Storms
2011 was an abysmal year for the global insurance industry, which had to cover yet another enormous increase in damages from natural disasters. Unknown to most casual observers is the fact that during the past few decades the frequency of weather-related disasters (floods, fires, storms) has been growing at a much faster pace than geological disasters (such as earthquakes). This spread between the two types of insurable losses has moved so strongly that it prompted Munich Re to note in a late 2010 letter that weather-related disasters due to wind have doubled and flooding events have tripled in frequency since 1980. The world now has to contend with a much higher degree of risk from weather and climate volatility, and this has broad-reaching implications.
And critically, it has a particular impact on food.
Many factors seen over the past decade have produced higher food prices: population growth, urbanization, the decline of arable land per person, and the upgrading of diets for example. But more damaging than food inflation has been the pushing of global food prices out of their long, quiet envelope of stability. From the recently released UN Report on the World Food Situation:
by
David Collum
[Every year, friend-of-the-site David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. Moreover, he has graciously selected CM.com as the site where it will be published in full. It's quite longer than our usual posts, but by any measure, 2011 offered an over-abundance of 'business as unusual' developments to summarize. We hope you enjoy David's colorful observations and insights, which are very much his own. — cheers, Adam]
Background
Governments gambled on a return to growth solving all the problems. That bet has failed.
—Satyajit Das—
Every December, I write a Year in Review. Last year's was posted at several sites including Chris Martenson’s [1]. What started as summaries posted for a couple dozen people accrued over 13,000 clicks in total last year. It elicited discussions with some interesting people and several podcasts, including a particularly enjoyable one with Chris [2]. Each begins with a highly personalized survey of my efforts to get through another year of investing. This is followed by a brief update of what is now a 32-year quest for a soft landing in retirement. These details may be instructive for some casual observers. I have been a devout follower of Austrian business cycle theory since the late 1990s and have ignored the siren call for diversification. I vigilantly monitor my progress relative to standard benchmarks. The bulk of the blog describes thoughts and ideas that are on my radar. The commentary is largely stream-of-consciousness with a few selected links that might be worth a peek. Some are flagged as “must see”. Everything else can be found here [3].
2011 Year in Review: Signs of an American Spring and a Fourth Turning
by David Collum[Every year, friend-of-the-site David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. Moreover, he has graciously selected CM.com as the site where it will be published in full. It's quite longer than our usual posts, but by any measure, 2011 offered an over-abundance of 'business as unusual' developments to summarize. We hope you enjoy David's colorful observations and insights, which are very much his own. — cheers, Adam]
Background
Governments gambled on a return to growth solving all the problems. That bet has failed.
—Satyajit Das—
Every December, I write a Year in Review. Last year's was posted at several sites including Chris Martenson’s [1]. What started as summaries posted for a couple dozen people accrued over 13,000 clicks in total last year. It elicited discussions with some interesting people and several podcasts, including a particularly enjoyable one with Chris [2]. Each begins with a highly personalized survey of my efforts to get through another year of investing. This is followed by a brief update of what is now a 32-year quest for a soft landing in retirement. These details may be instructive for some casual observers. I have been a devout follower of Austrian business cycle theory since the late 1990s and have ignored the siren call for diversification. I vigilantly monitor my progress relative to standard benchmarks. The bulk of the blog describes thoughts and ideas that are on my radar. The commentary is largely stream-of-consciousness with a few selected links that might be worth a peek. Some are flagged as “must see”. Everything else can be found here [3].
by
charleshughsmith
Hard Times Ahead for Assets
by Charles Hugh Smith, contributing editor
Tuesday, December 27, 2011
Executive Summary
- Understanding the leading indicators for commodities prices
- Either bellwether copper is cheap or stocks are expensive
- S-curve analysis suggests we’re entering a corrective phase for commodities
- Why those long on on resource investing should take a defensive stance
Part I: Are Commodities Topping Out?
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: Hard Times Ahead for Assets
Are commodities topping out? Since we know commodities are physically limited in supply even while demand continues to rise, common sense suggests that commodities will outperform over the long term for as long as industrial civilization continues its consumption of those commodities.
However, it is also clear that the global economy is either slowing or entering an actual recessionary contraction. Thus it behooves us as investors to ask what that contraction of demand might do to the prices of commodities over the near term (i.e., the next 24 months, 2012-2013.)
In Part I, we examined the connection between stock markets and demand for commodities as reflected by the chart of the Reuters/Jefferies CRB Index, the commonly used bellwether for the commodities market. We determined that if the stock markets of China and India are indeed leading indicators of demand for commodities, then the market for commodities will likely weaken.
We also found that margin debt seems to be far more closely correlated to the US stock market than demand for commodities as reflected by the CRB, meaning the US stock market may not be an accurate leading indicator of commodity demand or pricing pressure.
In Part II, we examine a key technical correlation that has withstood the test of time, that of copper and the stock market, and explore a potential key dynamic which may exert outsized influence on the demand and pricing of commodities over the next few years.
As a side benefit, our examination of the commodities may also shed light on the direction of the stock market — another key interest for many investors.
Hard Times Ahead for Assets
PREVIEW by charleshughsmithHard Times Ahead for Assets
by Charles Hugh Smith, contributing editor
Tuesday, December 27, 2011
Executive Summary
- Understanding the leading indicators for commodities prices
- Either bellwether copper is cheap or stocks are expensive
- S-curve analysis suggests we’re entering a corrective phase for commodities
- Why those long on on resource investing should take a defensive stance
Part I: Are Commodities Topping Out?
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: Hard Times Ahead for Assets
Are commodities topping out? Since we know commodities are physically limited in supply even while demand continues to rise, common sense suggests that commodities will outperform over the long term for as long as industrial civilization continues its consumption of those commodities.
However, it is also clear that the global economy is either slowing or entering an actual recessionary contraction. Thus it behooves us as investors to ask what that contraction of demand might do to the prices of commodities over the near term (i.e., the next 24 months, 2012-2013.)
In Part I, we examined the connection between stock markets and demand for commodities as reflected by the chart of the Reuters/Jefferies CRB Index, the commonly used bellwether for the commodities market. We determined that if the stock markets of China and India are indeed leading indicators of demand for commodities, then the market for commodities will likely weaken.
We also found that margin debt seems to be far more closely correlated to the US stock market than demand for commodities as reflected by the CRB, meaning the US stock market may not be an accurate leading indicator of commodity demand or pricing pressure.
In Part II, we examine a key technical correlation that has withstood the test of time, that of copper and the stock market, and explore a potential key dynamic which may exert outsized influence on the demand and pricing of commodities over the next few years.
As a side benefit, our examination of the commodities may also shed light on the direction of the stock market — another key interest for many investors.
The past several years have seen a growing backlash against “paper” investments as more and more investors consider hard assets to be a safe haven against the implications of central bank money printing. But as the global economy visibly slows, this question arises in many minds: Are commodities, which have been on a tear since the March 2009 bottom, finally topping out?
The ECB’s Latest Liquidity Move
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