I know this is my second pessimistic post this week, but along with an energy crunch, I have been concerned about a food crunch. The whole ethanol love affair has had me worried for a long time about the impact on food supplies. My concern has been that as we diverted corn to ethanol, corn prices would go up (affecting food prices) but that also other crops would be affected. Some cropland would be shifted to corn, to take advantage of the artificial market created by the ethanol mandates, and this could cause acreage of other crops to fall short.
And if you look at USDA Long Term Crop Projections, you will see that in fact, as corn prices climbed due to ethanol mandates, the amount of acres devoted to wheat and soybeans decreased – which has exacerbated an already difficult wheat situation. (Though they are expecting wheat acreage to rebound this year due to very high prices).
My good friend, Nate Hagens (a very level-headed guy), at The Oil Drum notes today:
Hard red wheat is limit up again (i think thats 9 days out of 11) and is at $19.80 a bushel. When it broke $6 a bushel last summer that was an all time high. I have to believe there are going to shortages. I know I can’t buy in bulk at local bulk food store right now – orders are backlogged. Ticker symbol MWH8. I don’t know enough about the differences between soft and hard wheat other than the hard has more protein and is used in breads, bagels etc. Wow. $20 a bushel….
Now there is an article from today’s FT suggesting that we are on the cusp of a food crisis:
The next crisis will be over food
A few days ago, I happened to hear Goldman Sachs discuss the state of the global financial system with European clients.
And what struck me most forcefully from this analysis – aside from the usual, horrific litany of bank woes – was just how much trouble is quietly brewing in corners of the commodities world.
Never mind that oil prices are high; that problem is already well known and gallons of ink have been spilt debating that, along with the pressures in metals and mineral spheres.
Instead, what is really catching the attention of Goldman Sachs now is the outlook for agricultural prices. Or as Jeff Currie, head of commodities research at the US bank, says with disarming cheer: “We think we could go into crisis mode in many commodities sectors in the next 12 to 18 months . . . and I would argue that agriculture is key here.”
Following that, a troubling historical note:
Now, to some readers of the Financial Times, that observation might seem odd. After all, inhabitants of the western world typically spend far more time worrying about the price of petrol for their car, rather than the price of wheat or corn. And when western investors do think about “commodity shock”, their reference point typically tends to be the 1970s oil crisis.
However, as Mr Currie observes, this is a dangerously blinkered view. Back in the 1970s, famine touched a much bigger proportion of the world’s population than the energy crisis, he says. And even today, rising food prices pack a powerful political punch in the developing (or partly-developed) world, to a degree that is sometimes underappreciated by the pampered west.
And the writing is on the wall in Africa:
Now, for any investor who is long on commodities right now (and I would guess that club includes Goldman Sachs), such trends might seem to smack of good news. For anybody who is dirt poor in the developing world, however, the picture is disastrous.
A WFP official, for example, recently showed me the red plastic cup that is used to dole out daily rations to starving Africans – and then explained, in graphically moving terms, that this vessel is typically now only being filled by two-thirds each day, because food prices are rising faster than the WFP budget.
Now I will be the first to acknowledge that higher energy prices across the board are a contributing factor here, but we have made matters worse with worldwide mandates that result in converting food into fuel.
Sad! Entirely predictable unintended consequences. This may be a mortal blow to biofuels. Not that I’d be spending tears on the demise of corn ethanol. You just have to ask: How could the DoE have been so short sighted?
But who knows. Perhaps this will serve to separate the pretenders from the real solutions.
Didn’t some people at TOD use to say that world grain production had fallen below production in the last years (presumably meaning that we’ve all been eating stockpiles)?
I did find this “54 days of consumption” article dated January 25th 2008
Compare to “57 Days of Consumption” back on June 15th 2006
Maybe that’s not such a huge drop(?).
Here’s your grain pic
oops, that dumb db says maybe copyright. alternate
Here’s the best serious image to use. It shows the “days of consumption” since 1960.
We are definitely falling out of the comfortable range.
It comes from this graphics-dense pages.
Having grown up on a 2000 acre wheat farm in Canada, where we mostly grew hard red spring wheat, the current price is kind of a shocker.
My dad made relatively good return on investment and labor in the ’70’s with wheat at $5/bu, diesel at less that $1/gal and a 200hp tractor at $70k. This got progressively less profitable through the ’80s and in a few years like 1982 the entire province actually lost money.
There are some great stats here:
Sask Ag and Food
In 2008, fertilizer, diesel and equipment are at least at 3x the 1970’s price. $20/bu wheat is a market adjustment.
The only way that farming in Saskatchewan has survived is by diversifying from wheat. Canola and all of the specialty/pulse crops were the only way to keep things going with $5/bu wheat for the last 30 years.
That will change with a realistic wheat price. Some of the other things like irrigation that were never feasible with $5/bu wheat will also come into play.
To put Saskatchewan into perspective wheat-wise, the most spring wheat produced here was 15 million tonnes, the entire US produces about 70 million tonnes and Kansas was about the same as Saskatchewan in the 12 million tonne range. There was 15 million acres of wheat here in 1976, but only 9.5 million in 2006, due to the low wheat price.
btw: 36.7 bu of wheat in a metric tonne (2200/60)
Here’s the best serious image to use. It shows the “days of consumption” since 1960.
Happy now? 🙂
I admit, graphics do spruce it up a bit. But I usually just do a fast brain dump and don’t think much about that. If I did one post a week, I could take a bit more time and add some niceties like that. But I sort of post in a stream of consciousness fashion.
Yes, thank you. If anyone sees a nice PD “greedy banker” let me know. I’ve got some “credit crisis” link I really should dump onto odograph.
(did you notice that the earth-policy folks had some grain superimposed with ethanol graphs?)
Oil and food are linked in more than one way. You mention the danger of famine but before this we will see serious political instabillity in many places, for example the Middle East. Egypt, the world’s biggest importer of wheat, will not be able to keep food subsidies, which will mean riots. The same goes for Morocco, Jordan, Iraq, perhaps Tunisia, and in a few years, Yemen. I don’t think this is going to make people in these places like the USA.
An unstable Middle East will have an effect on oil prices etc. These are very serious developments.
Congress may be about to make things worse with the Renewable Energy Conservation Tax Act of 2008. See discussion here .
I like the fact that oil companies on average paid 37% in tax, a bit higher than the industry average. The whole idea that energy companies are undertaxed is just wrong.
Oil and food are linked in other ways. Both Nigeria and Venezuela have some of the best and most productive farmland on their respective continents. Before oil, they exported food to their neighbors. No more. Now they can’t feed even themselves as workers and the government abandoned the agricultural economy to pursue quick oil riches.
Zimbabwe likewise destroyed its agricultural wealth to pursue income redistribution.
Off topic, and no time to address it right now, but I don’t think Judy Dugan likes ExxonMobil. Someone pointed out how much they paid in taxes, and it got her in a huff. And see if you can see the very large (intentional?) error on the amount of taxes XOM paid.
But if you very wanted to take her on, they aren’t quite as bad about censoring over there at Huffington Post (although I have been censored there) as Judy is at Oil Watchdog (where she censors almost everything).
Wow, Judy really blew a gasket. Billions, millions it is all the same to the mathematically challenged.
Her HuffPo article deserves a good Fisking.
Europe managed for years to avert their eyes from conflict brewing in Yugoslavia, and did nothing effective once trouble broke out until the US provided leadership.
The UN has shed tears over the ongoing wars in central Africa and the Sudan, but has done nothing effective.
If food wars break out, the comfortable West will manage to avert it eyes again — just like we have over the politically-driven starvation in Zimbabwe.
Move along, folks. Nothing to see here. Move along.
Japan consumers to pay 30 pct more for foreign wheat
http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUST7052020080215
If food wars break out, the comfortable West will manage to avert it eyes again — just like we have over the politically-driven starvation in Zimbabwe.
OK, fair enough. But what’s the alternative? Assassinate Mugabe? The problem is South Africa’s racist president Thabo Mbeki. Rather than lean on Mugabe, he wants to play along and pretend it is all the West’s fault.
Well, now I guess they are waiting for somebody to solve the problem…
OK, fair enough. But what’s the alternative?
Very good question — to which there is no good answer.
One of the most amazing things about Mugabe’s use of starvation as a weapon against his own people has been the profound unwillingness of the vaunted “international community” even to bring the topic up. European leaders have carried on inviting him to their left-wing jamborees, even though they knew what he was doing at home. Even though it would have cost them nothing simply to not invite him.
To be brutally blunt about it, there is nothing we are prepared to do.
If (when) the biofuels-driven food crisis Robert writes about hits, it is clearly going to hit people in the Third World hardest. And the track record of the EU (and others) shows that western leaders will be quite prepared to turn a blind eye to human suffering that their own actions will be helping to make worse.
Doubtless, Europeans and others will convince themselves that their dedication to solving the maybe non-existent problem of not-very-urgent anthropogenic global warming justifies them in ignoring the real problem of immediate starvation in other countries. Until we the people start to think for ourselves, it will be business as usual.
Kinuachdrach almost made it, he managed to get most of his post written without mentioning global warming but just couldn’t get past the finish line.
Oh well better luck next time.
TJIT
I wonder what the economics of that wheat ethanol plant they were building in Canada looks like these days?
TJIT
Another thing to consider
Peak Fertilizers.
As is, the US is rather short on Potassium.
China and Morocco have most of the world’s reserves.
So we’d either have to be very reliant on China
Or reliant on “The Middle East” for our fuel ;D
http://gristmill.grist.org/story/2008/2/13/64820/6921
But more seriously, biofuels demand will cause fertilizer costs to skyrocket.
Just to add to this weeks doomer theme: China: Massive Unemployment Looms
This article echos some of my own observations about China’s economy. One of my first walks around Shanghai I noticed peasants sleeping on top of stacks of plywood forms. My interpreter said they were from the country and would walk hundreds of miles to get a construction labor job in the city just to send money back home.
With the fixed exchange rate at 8 RMB / $ and an export based economy, China’s fortunes are tied to the US. Even a mild recession in the US will have disastrous impacts on China, and we might see $50 oil sooner rather than later as China reduces factory output and purchaes of fuel oil for power generation.
King said, “Even a mild recession in the US will have disastrous impacts on China, and we might see $50 oil sooner rather than later…”
Could be. There are two questions that come to mind in this connection. Maybe you have the answers (I don’t claim to).
1) If we have a world recession (or depression), millions of people will still be unable to buy fuel, cheap or not, because they’ll be unemployed. So $50 oil would be no help to them. Or would it?
2) If oil drops to $50 or thereabouts, wouldn’t this encourage a lot more consumption by those with money to buy fuel? Kerosene costs me 95 yen/liter, so I economize with a wood stove. But if it drops down to half that price, why would I be sawing and splitting wood?
USDA data on all wheat:
2007 was most acres in 3 years.
2007 wheat crop: 60.4 million acres planted, 51.0 acres harvested, 2.007 billion bu. Harvested, 40.5 bu/acre.
2006 wheat crop: 57.3 million acres planted, 48.8 acres harvested, 1.812 billion bu. Harvested, 38.7 bu/acre.
2005 wheat crop: 57.2 million acres planted, 50.1 acres harvested, 2.105billion bu. Harvested, 42.0 bu/acre.
Dipchip
I wonder what the economics of that wheat ethanol plant they were building in Canada looks like these days?
Wheat ethanol is made from feed wheat, which isn’t tied to miller grade wheat as much as it is to other feed grains, especially corn.
There are many wheat ethanol plants in Canada. The one I am most familiar with has been operating since 1981.
The spot price for Canadian feed wheat is way up at close to $280/tonne, which is an all time high. The amount of ethanol produced from a bushel of wheat is less than corn. With feed wheat at $6-8/bu, the math isn’t good.
I just don’t think there is much to worry about, food-wise.
Yes, famine in Africa is terrible, and when I was a little boy in the 1950s Africa was a mess, and here we are in the 2000s, and it is a mess. I predict my grandchildren will be relief workers in Africa. (And many individual Africans are wonderful people).
The picture outside of Africa is better than years back. In Thailand, rural folk used on subsist on rice, found vegatables and caught fish.
Now, many have motorscooters, and can buy eggs, and other protein. Vegetables and rice are affordable. Mercy, they even universal health insurance.
Thailand is not the world, but i suspect somewhat reflective of second-world nations.
Life will only get better in India and China. They are on the way. They will plant more with beter equipment, and increase their caloric intake.
Really, the only place in the world where life is not getting better are places with horribly corrupt governments, and no population control. It is terrible, but hardly worldwide.
Even a mild recession in the US will have disastrous impacts on China, and we might see $50 oil sooner rather than later as China reduces factory output and purchaes of fuel oil for power generation.
Possibly, King. On the other hand, as the article points out, China has the largest financial reserves in the world. China has huge opportunities to generate wealth by investing in infrastructure in their under-developed west. And, if the fears are correct, China will have lots of unemployed workers who need jobs.
Money, opportunity, human resource. With those cards in hand, even the current benighted US Congress might be able to make the obvious choices; the chances that China’s rulers will muddle through are excellent.
There will certainly be bumps along the way, but the long-term trend is very well established — increasing global energy demand. How to meet that growing demand? Now there is the challenge.
Those instances of bioenergy based on the first use of conventionally produced agricultural products in the U S are going nowhere because they are water, fertilizer and labor inefficient.
The best available crop for the purpose is corn (maize), but it is typically 21 times less space efficient than say PV solar — in addition to all the aforementioned inefficiencies.
Corn as a source of bioenergy is the spoiled child of the U S Midwest Corn Belt Lobby in Washington, DC.
.
Seems likely that higher food prices will result in considerable additional land being put under cultivation. Which will lead to the next major shortage–water.
Next ??
I checked out Huffington, having never seen it before. An interesting crowd over there…. all spewing the usual good stuff. Taking on that bunch would put you in the position of the solo biologist trying to reason with a roomful of creationists.
I just don’t think that any amount of logic and supporting data will get anywhere with such people.
Has anyone in this blog ever taken on (in person or online) a typical uninformed industry critic like Dugan and convinced them of the errors in their assumptions and the huge holes in their logic? I have found that you just get ignored and facts are simply brushed aside, or that people think you are somehow tricking them.
I checked out Huffington, having never seen it before.
They have been sitting on a response of mine for 24 hours. It is being held for moderation. It should be posted, because I didn’t violate any of the rules that would disallow a response. But if they don’t post it, I will post it here, along with the response you made over at Oil Watchdog.
Has anyone in this blog ever taken on (in person or online) a typical uninformed industry critic like Dugan and convinced them of the errors in their assumptions and the huge holes in their logic?
I have gotten quite a few to back-pedal, and I have had several tell me that I changed the way they viewed the oil industry. But the very best way to do this is one-on-one. If I sat across from Dugan for a couple of hours, she may continue to lie about the oil industry after that, but she would at least know she was being dishonest.
I can ask her a series of questions that would lead to many contradictions in her position (as you have also done at times). Things like – So, you want lower gas prices, AND less GHG emissions? Do you think demand is affected by price? So you want more investments in refining capacity, AND you want higher taxes from oil companies?
“I have gotten quite a few to back-pedal, and I have had several tell me that I changed the way they viewed the oil industry.”
I suppose if you spoke with someone who really wants to take the effort to learn, then you’d have a good shot. It would help if the person has an analytical mind and/or is familiar with the scientific method. But I agree. In a roomful of listeners, real or virtual, mob mentality will rule. Unfortunately, most people either can’t or won’t make the effort to learn.
Looking forward to your post!