It seems that we are facing not only high gas price but also high food price
that are annoying to our economy and stock market. Ugh again this is one of
Uncle Sam's creative work besides Tibet, high oil price, and high food price,
all efforts driven to make Beijing Olympic less successful? MU Food-crunch
'fix' won't work The answer to the world's food-supply squeeze isn't to
ban or curtail exports (though that's being tried). The short-term solution
lies in seed and fertilizer. Investors, take note.
By Jim Jubak
Starve thy neighbor.
It leaves something to be desired as moral advice. It's pretty bad economics,
too.
The recent decisions by Argentina, Russia, Vietnam and others to limit
exports of wheat, rice and other grains won't stop runaway food inflation in
those countries. It will, in fact, prolong today's global food-supply crunch.
Speculators, however, are cheering because the less grain there is on world
markets, the more hoarding and panic buying will drive prices higher.
The only long-run solution to the global shortage of grain and other foods is
to increase supply. That's going to take lots and lots of fertilizers and other
agricultural chemicals and new varieties of higher-yielding seed. Investors can
count on an additional decade of good times for stocks such as fertilizer maker
Potash of Saskatchewan (POT, news, msgs) and herbicide and seed giant Monsanto
(MON, news, msgs).
If investors are very lucky, the current bear market might even deliver a
sell-off in these shares that would provide a good entry point. But,
unfortunately, share-price action of the past few months suggests that's
unlikely. Inflation by the slice The likelihood that starve-thy-neighbor
policies are going to drive up the price of grains and other foodstuffs isn't
exactly good news, coming on top of stunning increases in grain prices.
On April 3, corn for May delivery closed at $6 a bushel; a year earlier, May
corn closed at $3.46. That's a jump of 73%. In the same period, the price of a
contract for soybeans for May delivery climbed to $12.57 a bushel from $7.63,
an increase of 65%, and wheat soared to $9.35 a bushel from $4.20, a 123% gain.
No wonder my neighborhood pizza guy has raised his price for a plain cheese
slice twice in the past two months by a total of 50% -- or that a baguette at
my local bakery goes for 16% more than it did a month ago. Come to think of it,
looking at the jump in prices on the commodities market, it's amazing that a
slice costs only 50% more.
But while a jump in price like that is painful to me, food inflation is
literally life and death for hundreds of millions in the world's developing
countries. In February, food prices in China were up 23% from February 2007. In
a year, the price of pork climbed 63%, vegetables 46% and cooking oil 41%.
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