[Vnbiz] Experts: Global Food Shortages Could ‘Continue for Decades'

[Tran Dinh Hoanh]

http://www.marketoracle.co.uk/Article3782.html

 Experts: Global Food Shortages Could 'Continue for Decades'
Commodities<http://www.marketoracle.co.uk/Topic3.html>/ Agricultural
Commodities <http://www.marketoracle.co.uk/News-catid-117.html> Feb 22, 2008
- 01:36 PM

By: Joseph_Dancy

[image: Commodities] <http://www.marketoracle.co.uk/Topic3.html>

[image: Best Financial Markets Analysis Article]Global inventories of grains
are nearing historic lows, while twenty percent of the U.S. corn crop this
coming year will be used for ethanol production. Meanwhile wheat, rice and
soybean prices have reached all-time highs and corn prices have jumped to a
12-year high.

Demand for grain continues to increase adding upward pressure on the price
of agricultural products. We expect this trend to continue. Recent
developments in the sector, found in various publications, include:


   - For decades, the industrialized world enjoyed the luxury of
   producing far more milk, butter and wheat than its citizens could consume.
   The surplus was exported or was destroyed. Some experts expect this luxury
   has now come to an end. Europe 's mountains of butter have been depleted,
   its grain silos emptied and its lakes of milk drained. "The era of
   overproduction is behind us," says Stephane Delodder, an agricultural
   specialist with Rabobank in the Dutch city of Utrecht .

For the first time, we are seeing the emergence of a global agricultural
market driven by the growing demand for grains and a scarcity of supply.
Wheat inventories, for example, have reached a 30-year low. In one year
inventories in the European Union have plummeted from 14 million to one
million tons. The fact is that arable land cannot be increased at will. Over
the past three decades, the amount of arable land worldwide has stagnated at
about 1.5 billion hectares (3.7 billion acres).

While new agricultural lands are being added in Russia and South America ,
more and more land is lost to residential and industrial development in Asia
and Europe . In China , eight million hectares (20 million acres) of land
under cultivation have vanished within a decade. For comparison, just under
12 million hectares (30 million acres) of land are currently used for
agriculture in Germany . These spatial limitations would be tolerable if the
world's population wasn't growing at such a breathtaking pace.

How long will the agricultural boom last? Michael Schmitz, an agricultural
economist and professor, used databases to forecast how far trends would
last when global conditions change like they have recently. The professor
says that the current shortages and price hikes are not a phenomenon that
will end in a few months -- or even in a few years. Schmitz predicts: "This
could continue for two or three decades." (Spiegel Online)

   - The world faces a serious food crunch "that is not getting nearly
   enough attention from global leaders" the head of the world's biggest
   fertilizer producer warned last month. Global grain reserves are
   "precarious" at only 1.7 months of consumption according to Bill Doyle, CEO
   of PotashCorp. Profiting from world agricultural demand, he noted "we
   believe that in many ways we are just getting started and the best is yet to
   come." As hundreds of millions more people in China , India and
   elsewhere attain higher-protein diets, Doyle expects global production of
   grains and soybeans will fall further behind demand.


   - World food security, as measured by grain inventories, has slumped
   to its lowest since records began in 1960. Just 50 days of grain inventories
   are available, compared with 115 days in 2000. Julian Cribb, a professor
   from Sydney 's University of Technology , predicted the oil and credit
   crises rattling world economies will be "nothing compared to the
   threat from emerging global food shortages." (Courier-Mail)

•  The U.S.D.A. released a report last month that highlighted; (1) how few
additional acres have been planted globally in the last decade, even as
world population and economic growth continues forward, and (2) how rapidly
the global grain inventories have declined. A summary of the report is set
out below. (Table from U.S.D.A. website)


   - Scarcity of water and arable land means that the boom in food prices
   could last longer than most expect, warned a study issued last month. The
   report, published by the UK-based consultants Bidwells Agribusiness, said
   the agricultural boom – until now fuelled by rising demand from emerging
   countries and the biofuels industry - would be exacerbated by supply
   constraints. Water and land scarcity, together with slow improvement in
   agronomics, will be key factors limiting food production. (Financial Times)


   - From 1961 to 1970, the price of crude oil was static at about $1.80
   per barrel. Based on the quality of wheat produced in Saskatchewan during
   that 10-year period, average price received by farmers was $1.58 a bushel.

A barrel of oil and a bushel of wheat were about the same value back in the
1960's. Today wheat might surpass $8 a bushel for this crop year, but a
barrel of oil sells for around $90. A bushel of wheat has gone from being on
par with a barrel of oil to being worth less than a tenth as much. (Star
Phoenix ( Canada ))

   - La Nina conditions now pose a significant risk to U.S. corn
   production in 2008, says Iowa State University meteorologist Elwynn Taylor.
   By late December those La Nina conditions had met specific guidelines that
   point to the possibility of drought in 2008.

"At this time the combined risk is a 68% chance of a below trend U.S. corn
yield," says Taylor . This risk is increased by scant subsoil moisture, the
19-year drought cycle, and existence of drought in the area of South
Carolina . (Farm Futures)

   - Throughout history people have eaten more meat and protein as they
   have become richer. This is called the nutrition transition and it's now
   happening, very quickly, in the two most populous nations on the planet –
   India and China .

Hundreds of millions more people are now rich enough to eat meat compared
with 10 years ago. Tim Lang, professor of food policy at London 's City
University , notes 'I've been expecting this for two years. The food system
is entering a period of very significant restructuring, the first since the
years after the Second World War. We may look back at the second half of the
last century as an era of cheap food. It'll be like the Hundred Years' War,
as we were taught it in school: a seminal moment in human history that's
gone and will not return.'

Food is - for the rich world, at least - astonishingly cheap. The average
British household spends 13 per cent of its income on food – fifty years ago
that figure would have been 30 per cent. (Guardian Unlimited)

   - Although we are coming off a record corn harvest, if elevated price
   levels do not subside the impact would be staggering according to some
   experts. For example, current grain prices imply that land rents in Iowa and
   the rest of the Corn Belt should increase by a factor of about 2.8.

As land rents go, so too do land prices. Iowa State University 's annual
land price survey showed that in 2005 the average acre of farmland in Iowa
was valued at $2,914. Multiplying the 2005 land value by 2.8 suggests
average land values in excess of $8,000 per acre. (Cattle Network)

   - Deutsche Bank last month predicted 2008 will be another year of
   strong commodity price gains, most notably in the agricultural and precious
   metal sectors. Michael Lewis, Global Head of Commodities Research at
   Deutsche Bank, found that rallies in the agricultural sector are "still
   in their infancy." Deutsche Bank expects new price highs to be
   achieved across the sector, with corn, cotton and soybeans especially
   attractive. (Wall Street Journal)


   - Last month 10,000 Indonesians demonstrated outside the presidential
   palace in Jakarta after soybean prices soared more than 50 per cent. While
   the social unrest has not yet spread to other Asian nations, consumer
   frustrations are mounting. World soybean prices climbed to a record last
   month, partly because farmers in the US and Asia have instead been growing
   crops to supply the biofuel industry. Bad harvests in Latin America and
   rising Chinese demand have added to the price pressure. (Financial Times)


   - The pressures in global food markets have grown so intense that, for
   the first time in its history, the United Nation's World Food Program is
   finding it hard to procure supplies of essential commodities. In particular,
   countries in the emerging world were now placing so many export controls on
   items such as wheat to conserve them for their own populations that they
   have refused to release supplies to the U.N. "We have never seen this
   before" according to senior officials at the World Economic Forum in Davos.
   (Financial Times)

•  [image: Rising Costs Felt at the World's Dinner Tables]

A simple calculation points out biofuel's less-than-stellar potential. To
fill the roughly 100-liter (26-gallon) tank of an SUV, an ethanol producer
has to process about a quarter of a ton of wheat.

This is enough wheat for a baker to bake about 460 kilograms of bread, which
has a total nutritional value of about a million kilocalories -- enough to
feed one person for a year. (Spiegel Online, New York Times)

Charles Munger and Warren Buffett both note that a good business environment
– one where a company can earn reasonable margins and expand – is one of the
main elements that has been present in their best investments.

We think the agricultural and energy sectors present the best business
environment investors will find. In the end these long term positive trends
will serve our investors well.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, *LSGI Market Letter*

http://www.lsgifund.com

Email: jdancy at REMOVEsmu.edu

Copyright (c) 2008 Joseph Dancy - All Rights Reserved

Joseph R. Dancy, is manager of the LSGI Technology Venture Fund LP, a
private mutual fund for SEC accredited investors formed to focus on the most
inefficient part of the equity market. The goal of the LSGI Fund is to
utilize applied financial theory to substantially outperform all the major
market indexes over time.

He is a Trustee on the Michigan Tech Foundation, and is on the Finance
Committee which oversees the management of that institutions endowment
funds. He is also employed as an Adjunct Professor of Law by Southern
Methodist University School of Law in Dallas, Texas, teaching Oil & Gas Law,
Oil & Gas Environmental Law, and Environmental Law, and coaches ice hockey
in the Junior Dallas Stars organization.

He has a B.S. in Metallurgical Engineering from Michigan Technological
University, a MBA from the University of Michigan, and a J.D. from Oklahoma
City University School of Law. Oklahoma City University named him and his
wife as Distinguished Alumni.
  Joseph Dancy Archive<http://www.marketoracle.co.uk/UserInfo-Joseph_Dancy.html>
**

-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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