I think that food is going to become very, very expensive in the United States—more expensive in real terms than anything I have seen in my lifetime. The causes will be many. There is presently an outbreak of bird flu in the course of which millions of chickens are being euthanized (to save you the trouble of looking up how many chickens there are in the U. S., it’s about half a billion) with their bodies burned. That will raise the price of chicken and eggs, if only marginally. This year we’ve had the worst wheat harvest in 50 years. That will raise the price of bread and many other foods at least marginally. Ukraine will be offline for most of this year. Russian wheat imports will be off for the foreseeable future and they’re the world’s largest exporter.
Higher oil prices will increase the costs of farmers and producers which will be passed on to consumers to the degree that they can. Limits on imports of fertilizer from Russia will raise the cost of fertilizer.
When you add all of this up it probably means famine in some place, presumably Africa and Asia, and higher prices here in the U. S.
The political temptation to subsidize food consumption will be irresistible, the effects of which may be perverse. The percentage of poor people who are obese in this country is truly amazing.
Central America would be another place that could be affected by famine.
Another problem is countries are locking down supplies with export bans — a positive feedback loop that makes supplies even harder to get.
To be honest; I thought the smart move was subsidies for fertilizer and that was before the war. Now it maybe prudent to talk about some form of rationing to ensure there is sufficient supplies to avoid global famine.
By the way; the problem with not subsidizing food prices is it’s a known trigger for breakdown in civil order. Does the government want to find out if things could get more heated then the summer of 2020 or Jan 6, 2021?
Let’s rephrase what you’re saying here. It may be prudent for the United States to accept higher prices here to avoid famine elsewhere. I don’t believe our politicians think that way but I agree it would be prudent.
The prudent course of action is to let prices rise here, not provide consumption subsidies, and to introduce production subsidies both for food and fertilizer in a belated attempt at mitigating the risks in the long term. Philosopher-kings our politicians ain’t.
I would add that I think that there should be a ban on developing prime farmland for any other purpose and have argued that for years.
We went through a bird flu outbreak relative to our industrial bakery a few years ago. Egg prices took off, if you could even get them. Also, underappreciated is the energy required to dry seeds and grains for storage. Of course, some dryers are electric, so it doesn’t matter, right?
Meanwhile, Joe Biden is blathering on about green energy. Maybe all those obese people will be skinny by time green energy becomes truly practical in 30 years. Think of it as Joe’s way of helping people with their Type II diabetes.
Now should we talk about rare earths, Cr, Co, Cu………
Thanks, environmentalists.
I suspect wheat issues in the Americas will adjust pretty quickly with more Spring and Winter wheats. Livestock issues are always more difficult because of longer “growing seasons.”
China owns a lot of farmland in Ukraine via a Polish intermediary and long-term leases. This is primarily for growing corn for export to China. This is a big issue for China.
When I mean rationing I mean rationing; as in administrative controls that limit how much consumers can buy.
Using price alone to control demand could fail and actually make things worse in this info environment. Think toilet paper; knowledge of higher prices and possible shortages could spark a run and excessive hoarding, speculation. I bet given what we have seen in every other sector in the economy; such behavior could run through our stockpiles and whatever excess capacity for food exports this country in short order.
It would also be a geopolitical PR disaster if Americans aren’t seen to visibly sacrifice. Countries like Egypt or Indonesia which are big importers of Russian foodstuffs would be flooded with messages “American is willing to fight Russia using the starving stomachs of Egyptians or Indonesians!”.
And to give an example of what I am saying.
https://www.cnn.com/2022/02/08/business/baby-formula-shortages/index.html
Before the war, there was the paradox of shortages of baby formula despite fewer babies being born (hence should have lower actual demand) and increased production (30% by manufacturers estimates). The most plausible explanation is a positive feedback loop due to hoarding/speculation.
That’s something of a specialty of ours. There are already complaints that we’re willing to fight this war to the last Ukrainian.
IMO President Biden will need to do a MUCH better sales job than he has been to make it to the end of his term in office and alive.
@CuriousOnlooker, higher prices also signal producers to plant more wheat.
I’m also not sure that grain markets are that liquid, in the sense that there are a lot of purchase contracts in place that already control where it goes. As I mentioned above, China “owns” farmland in Ukraine the size of Massachusetts. The arrangement is not transparent, but I assume its all intended to China. It’s not at all clear that limiting every American to one loaf of bread per household would result in any more wheat going to Egypt.
or that “wheat going to Egypt” would result in fewer Egyptians starving. Experience suggests it would make Egypt’s rulers wealthier.
And in the Age of Social Media more Americans would know that. How do you think asking Americans to sacrifice to make rich Egyptians richer will play?
“higher prices also signal producers to plant more wheat”
Agreed.
But we also have to be realistic how much higher prices can boost production in the required time period (we’re talking about weeks here). Ukraine and Russia accounted for 33% of the world’s wheat exports.
According to Wikipedia, in 2019, the world’s top exporters of wheat where China, India, Russia, US, France, Canada, Ukraine.
The US produces about 50 million metric tons. Russia exports about 35 million metric tons. Just to replace those exports the US must increase production by 60% in this growing season. Can the required amount of land/labor/other resources be moved to this task in a manner of weeks (when the growing season starts?).
And of course, it does no good if the extra wheat planted comes at the expense of other critical crops like soybeans or corn.
My key point was that U. S. wheat stocks are the lowest they’ve been in some time. Stocks affect how much can be exported now.
Oil back to $96. What’s going on?
Steve
What’s going on is that the trend remains up. Yes, there was a sharp spike. That could be speculation or any number of other things. Even when that’s removed the trend is up. Check it out at oilprice.com