Posts Tagged ‘Markets’

WORLD FOOD: A TRANSITION NEEDS TO BEGIN NOW

August 18, 2011

By Andrew McKillop
21st Century Wire
August 18, 2011

Media treatment of the major long-term issues of global food and energy does us all a big disfavour by sidetracking and diluting these issues, with wall-to-wall conspiracy theories. Oil and energy conspiracy theories are so thick on the ground they need no citation.

This also applies to the reality we face in world food and agriculture: the “conspiracy” of sure and certain global food shortage and the constantly rising threat of large scale ecosystem collapse.

NO CONSPIRACY

Beguiling undercover action is wheeled out to explain why food prices are rising, but the facts are simple: world food shortage already affects at least 900 million persons, more than 1-in-8 of the world’s present population.

The number of affected persons is growing much faster than either global economic growth or population growth. Another key fundamental is simple: the world’s current resource of arable farming land is about 1.4 billion hectares according to UN FAO. Annual gains from land development and farm expansion are countered by losses from a host of real world causes – not conspiracies. As of today, we have an average of about 0.2 hectares (2000 sq metres) per person of arable farmland for the world’s present 7 billion population, and this is much more likely to diminish than grow.

Q: How much food can any one person produce with a 50 x 40 metre patch of land?

Global food shortage already affects at least 900 million persons, more than 1-in-8 of the world's present population.

Food conspiracy theorists are forced to cobble theses of deliberate and planned food shortage for political and profit gains by conspiratorial players. While this certainly exists, the much bigger and more dangerous reality is that we have constantly rising food demand, but food supply only grows slowly: global food output growth for at least the past 15 years is characterized by uncertain and fragile, and above all slow growth.

There is no rational outlook for any repeat of the 1960s-1970s Green Revolution. Our present trajectory only leads to famine.

On the demand side, the drivers of growth are powerful: they include population growth, urban development, urban food habits, industrialized food production and sales, and emerging economy growth – raising world demand for grains, meat and fish protein, fruits and vegetable oils. On the supply side things are different. Growth of output is failing in sector after sector due to a huge range of often self-reinforcing factors. The biggest threat to future global food supply is however this: chain reaction collapse in oceanic and continent-sized land ecosystems, triggering huge falls in food supply.

This threat is now as large as the more predictable (and ‘normal or acceptable’), economic-related factors depressing food supply growth, or reducing food supply. These ‘conventional threats’ include water shortage, high prices for oil, pesticides and fertilizers, rising infrastructure costs, and land loss through urbanisation, roadbuilding, industrialisation, erosion, salination, and many other factors. The net result is simple: there is a progressive and incremental rise in agriculture’s capital intensity in all countries, and a constant drive for higher productivity on currently exploited farmland.

In a previous article I covered some aspects of the so-called Food War, and the real food crisis that exists.

COMFORTING CONSPIRACY

Conspiracy theories are above all reassuring because they allow us to cozily imagine that “everything is under control”: enough food exists, or could be produced, but wily minds and disreputable actions prevent this food arriving to hungry mouths, or prevent it being produced. Action by whistle blowing bloggers and all persons of good conscience, possibly including some politicians from minority or opposition parties and environmental NGOs, plus a few TV or film celebs, could transform the situation overnight or at least in almost no time. As they say, keep on dreaming.

Political motives for withholding or limiting food supply are usually attributed to the major food exporter countries, starting with the USA but this can also be applied to the small number of other large or medium rank food exporter countries. These include Brazil, Argentina, Ukraine, Australia, Thailand, Vietnam, the European Union considered as a bloc or group of countries, and a few other smaller exporter countries, in a global context very similar to world oil: no shortage of importers, but a real shortage of exporters. Also troubling by its similarity to fossil fuel depletion, agribusiness “farming” is heavily dependent on mining and the depletion of fixed resources – from fossil water to potash and other mineral fertilizers. 

Speculators and financiers are doing their part in distorting the prices of food worldwide.

The G-20 group of countries, which include all of the major net food surplus exporter countries and several leading food importers, has since 2008 repeatedly claimed it can or could intervene to reduce food supply shortage and rising food prices, but in each case was unable to do it. Reasons for this inability are conventionally restricted to dispute on trade and tariff issues, but basic supply/demand and food stock balances are at least as important:
http://www.bestgrowthstock.com/stock-market-news/2011/01/06/zoellick-g20-must-act-to-stabilize-food-prices/  

http://www.stuff.co.nz/world/4521451/G20-to-tackle-food-prices-as-countries-reassure

In each case of supposedly conspiratorial food exporting powers, we have to imagine these heavily urbanized and industrialized food exporter countries, or fast urbanizing and industrializing countries, have the capacity to quickly lever up their total food production but are deliberately not doing so. In fact, none of these food exporters have export surpluses covering all food crops and food products. In every case their annual growth in exportable food surpluses is either erratic or slowing, or their export volumes (if not value) are falling, relative to their own domestic food consumption. Even unpredictable but constantly varying natural factors, like seasonal weather change – related to climate change or not – now have a permanent high impact on commodity food prices, because the highly stressed supply/demand balance for major global foods does not allow sufficiently big and rapidly reconstituted stock builds to cushion increasingly rapid and frequent price shocks.

World food stocks are the focus of eagle-eyed hedge fund analysts, and their speculative zeal is well rewarded by the stock picture not only for the major grains (rice, wheat, maize, soy), but also vegetable oils and non-food bioresource products like rubber and jute. The basic picture is low or relatively low level stocks relative to demand, and for grains this is boosted by fast-growing global meat demand (multiplied by a factor of 5 since 1950), driving demand for animal feeds. Stocks of related and upstream basic inputs to food production and supply, spanning seeds, fertilizers and pesticides, and shipping storage infrastructures all create pinch points for growth of overall food supply. Over and above the chemical, biological and ecological threats to world food, the current system is overstretched and fragile, even by its own purely-for-profit terms.

Conspiracy theorists invite us to imagine the world’s few food exporter powers could change their practices and policies almost overnight, and “save the system”. This would be measured by global food commodity prices dropping for a while, before rising again, as in the 2008-2010 sequence but much more important is the higher goal of saving biodiversity and food web stability, worldwide.

TIME WASTING FANTASY

Tending to prove that Food War conspiracy theory is simple timewasting fantasy, almost no ways of permanently raising food exports are ever suggested by conspiracy theorists, and the reason is simple. When we look at the real ways for seriously increasing world food supply, we find they all need radical, very radical or extreme socioeconomic change. We have to backtrack and fast forward at the same time, with all components of the food production, processing, supply, use, waste disposal and recycling system. To be sure, piecemeal and incremental change is underway – for example organic food and traditional food production – but the global food crisis is a revolutionary paradigm changer.

Facing locked-on, unsustainable and dangerous global food production and supply systems, entrenched opposition by government and corporate players, and a basic refusal to change, it is unfortunately sure that disaster or near disaster will first be needed, to move things forward. Since it is arguable that we have never had any real modern famines, even in the immediate postwar periods of 1918-22 and 1945-49, we have no choice but to be pessimistic on how global society would react to “surprise famine”, despite this being far from a sci-fi fantasy, due to the recent, present and emerging global food context. 

A closer look at the supposed major food exporting powers shows they are in some cases basically ‘virtual’. In real terms and despite the massive food production subsidies paid by European governments to operate the Common Agricultural Policy of the Union, Europe is a large food importer bloc and has been for decades. On pure theoretical grounds (arable land per capita, water supply, climate, soil quality, biodiversity etc) Europe’s 500 million inhabitants could or might become food self sufficient – but this would need Pol Pot-type total decentralization and forced return to the soil, with radical long term remedial action to restore damaged biodiversity. The USA, always presented as the ultimate global food conspirator will likely become a net food importer in commercial terms, running a net trade deficit on food, by about 2017 on current trends. This could be changed, in theory, by a radical change in food crops – to economize on water, petroleum and cut pesticide dependence – and through a progressive return to the soil, to be sure implying heroic and revolutionary social change.

More simply, all food exporter countries and groups of countries are at present totally dependent on the “high tech mantra” of oil-pesticides-fertilizers-irrigation, and are increasingly dependent on GM (genetically modified) crops and GM livestock. Any short-term switch away from these props will inevitably reduce their total food production. Even with existing methods, their potential for reducing global food prices – and maintaining or raising their net food surpluses able to be exported – is practically zero and should be understood as that.

For livestock of all kinds (mammals, birds and fish) agribusiness farming depends on well-known, heavily described and analyzed ‘Belsen agriculture’ methods and practices for converting vegetable protein into meat patties for urban consumers. This ‘no alternative’ and currently profitable method of feeding the urban consumer mass converts crops like maize, soy, hay or rapeseed, into higher money value animal protein in the form of poultry meat, beef, pork or acquaculture-raised intensive fish, always needing massive and permanent use of antibiotics. 

Several generations of inundating animal livestock rearing with antibiotics has produced what might be expected, in antibiotic resistant pathogens – and new pathogens. This unsustainable food production is intrinsically unhealthy and dangerous, treating living animals like vegetable conversion machines and recklessly ignoring the genetic, prionic, epidemiological, biological, chemical and ecological collateral damage. The meat habits of urban consumers – always higher than rural and traditional diet consumers – face very sure and certain limits, not only to the growth of cheap meat and fish supply, but to the damage its production does to living systems and the environment.

The “real conspiracy” is therefore easy to describe. We have total dependence on depletable and depleting inputs for food production. We have increasing dependence on energy intensive, high risk food products, processes and methods which grossly interfere with and damage food webs, plant and animal genetics, and the general biology of living things. To a certain extent this is partly admitted, even by MSM (mainstream media) – but doing anything about it is out of the question!

ENVIRONMENT, BIOLOGY, ECOLOGY

Completely divorced from its basic linkage with and dependence on natural living systems, agribusiness food production systems at the global level have maintained their one-way drift to destructive and predatory methods, designed only to maximise production and profit. Starting with pesticides or biocides, a 2008 pesticide monitoring study by the US Dept of Agriculture found that around 75 percent of US food product samples tested positive for pesticides. This can then be compared with the simple, well known fact that of the 25 most commonly-used pesticides, 15 or more are known carcinogens, putting farmers themselves at risk, as shown by the depressing toll of cancers among farmers working in “high tech agribusiness”. For the USA alone, the US Environment Protection agency estimates there are 10 000 to 20 000 pesticide-related injuries and illnesses, especially including cancers, among US farm workers each year.. In other countries, especially the relative newcomers to “high tech agribusiness”, like Brazil and Argentina, China and India the rate of pesticide-related cancer among farmworkers is much higher than in the USA.

This of course “only” concerns human beings. Other living organisms are also collaterial damage victims of the pesticide onslaught, witnessed by the distressing, well-proven collapse of bee, bird,  frog and toad, and reptile populations in all or most countries with longstanding use of “modern agriculture” and therefore high cumulative levels of pesticides in their soils, waterbodies and food webs. Particularly toxic pesticides, like the organophosphates (originally developed as chemical and biological weapons) and the carbamates, in combination with no-till oil-saving “farming” where pesticides replace tractors, has especially grave impacts on soil arthropods. These vastly varied and numerous organisms are effectively the real agriculturalists, producing more soil than they consume – exactly the opposite of predatory, and destructive agribusiness “farming”.

In a word, we can easily do without so-called “farmers” spraying chemical weapons on food crops, compacting soils and destroying biodiversity – but we can never do without soil arthropods, bees, birds, amphibians and reptiles.

If the agribusiness onslaught on the basic ecological structure of the living environment stopped at the biocides this could or might be manageable, due in part to a confused, but growing understanding, even by middle class supermarket shoppers that they are buying carcinogenic poison along with their twinkies and golden nuggets, and their rigorously uniform-coloured and sized intensive-produced fruits and vegetables. However, the onslaught extends right through the food web or pyramid, firstly knocking out higher level predatory organisms and animals. high up the food web. In the world’s oceanic environment, which has no or few continental barriers and is ‘holistic’, the combination of overfishing and pollution is especially drastic, making the “recourse to aquaculture” not a profitable corporate business strategy – but a simple necessity. World fish catches of major traditional open ocean pelagic species like cod, shark, herring, whiting, mackerel, tuna and salmon, show a one-way trend: constant decline and more and more signs of outright stock collapse, despite hastily voted and enacted ‘blanket bans’ on fishing in some of the most-affected areas. 

We can go deeper and more basic with the agribusiness onslaught on the fabric of life and its support systems on this planet. Water. In countries using the most developed, that is the most intensively pernicious types of agribusiness, as much as 25 percent or one-quarter of total national water consumption can be used – that is often mined from depleting aquifers – for a single major irrigation dependent crop, like maize, soy, rapeseed, sunflower or wheat. The “sustainability” of that is laughably clear, but the collateral damage is both multiform and drastic and will depress future food production and crop yields, whatever system or process is used.

Acquifer mining for irrigation water is a proven cause of salination by seawater infill in coastal areas worldwide. Once salinated, the usually higher quality farmlands despoiled and wasted by this totally avoidable “farming” are necessarily replaced by lower quality land at higher altitude – or by another turn of the screw in the only thing that agribusiness knows: raising crop yields on shrinking good quality land by oil-pesticides-fertilizers-irrigation.

CHANGE NOW

Change requires economic restructuring, to be sure, but the first action needed is political acceptance of the need for change.

Due to our total dependence on unsustainable farming and food production systems – a lot more than simply “unhealthy” – we face constantly rising risks of wide-area biosystem breakdown and collapse through the present, constant attempt at gouging more food output from the Earth. The real conspiracy is blindly continuing on our present dead-end path – which only guarantees famine, riot and civil war.

Refusal to accept the need for change is the first crime.

Change starts with a public recognition of the no-win trajectory we are on. This is probably the biggest problem because – exactly like overpopulation – nobody wants to publicly admit that food shortage is a basic fact. The myth of “cheap food for the masses” is as pernicious and basic to the Growth Economy mantra as the cheap oil myth – which died more than 35 years ago.

The cheap food myth is next to go.

When the consumer masses can distinguish trash food – from real food – we will likely be very close to melt down: in other words you were what you ate, and now you don’t like it.

Rationalisations such as food shortage being “similar to joblessness and homelessness, and only affecting inferior people” likely have some remaining traction with the most basic-minded “middle class voters” in the Old Rich/New Poor countries of the OECD, quaffing famine video clips from Somalia on primetime before gobbling a takeout pizza just dripping with cheese, but reality is seriously eroding these supposed “comfort themes”. Even in the local agribusiness-supplied Wal-Mart or Tesco it costs a lot more the stay obese, fat and stupid that is, these days !

Cheap oil is now an almost forgotten aspiration of the car conscious middle classes, and cheap trash food will follow the same trajectory. Breakdown of the cheap  food system will most surely have a bigger impact than saying goodbye to cheap oil. The basic problem for Business As Usual is easy to state. The approximate 60% of society decreed as kleenex-throwaway by New Economy austerity programmes, still needs feeding.  As we know, before being either homeless or jobless, the sacrificed and excluded 60% of the total population outside the mould of “middle class voter” needs feeding, before being tossed in the gutter by the squeaky-clean economy, becoming “surprise rioters”.

Pretending that food is still cheap is increasingly difficult: about 45 million Americans, today in 2011, depend on food stamps to eat. This is the country which food conspiracy artists tell us has supposedly permanent and massive exportable food surpluses !  More than 1-in-7 of the USA’s population in 2011 needs food stamps to eat. The US food conspiracy is as much domestic and due to food shortage and high prices, as international and concerning the use of food supply as a geopolitical lever.

The political role of the jobless, homeless – and foodless – can only grow very fast in the Old Rich/New Poor countries, as both Mr Barack Obama and Mr David Cameron are finding out, ever day. With rising austerity programmes, needed to please bond traders and market analysts, the intensification of simple and straight food shortage as a stress factor in OECD country politics – as well as low income countries – can be very easily forecast. 

Both food and energy are unavoidable and basic needs for national populations: at times of crisis and austerity – basics count. Treating food and energy together is more productive than treating them apart, making it urgent these two themes are given the same political acknowledgement and treatment. On one hand this will be through the so-called price mechanism, deformed by the frenetic prism of commodity traders quaffing rumors, fact and fiction in equal doses. But on the other it can come literally anytime, when major continent-sized food webs and systems “surprisingly” collapse, leading to disastrously low annual crop sand food yields for major and basic food products.

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Gold Doesn’t Care About The Stock Market

July 12, 2011

by JOHN RUBINO
Dollar Collapse
July 12, 2011

Once upon a time, gold and stocks were thought to be inversely correlated. That is, when the market went up, gold would go down, and when the market was down, gold would go up as investors abandoned risky assets for the safety of sound money. Put another way, stocks were for “normal” times and gold was something you owned as protection against abnormal events like long bear markets or sudden crashes.

See the 2008/2009 part of the first chart below (blue line is the Dow, green line is gold) for an example of inverse correlation in action.

But post-crash, with the government borrowing trillions and running the printing press flat-out, gold and stocks became positively correlated, as newly-created credit pushed up the price of pretty much everything.

And now the relationship seems to be breaking down altogether. In the past week, stocks went up and stocks went down — and gold just went up. As this is written on July 11, the Dow is down about 1.3% for the day, while gold is up a few bucks to near its all-time high.

What, if anything, does this mean? There’s no way to know for sure, but one possibility is the expected impact of the Pan Asia Gold Exchange, which will bring gold to a new, potentially huge, market. See this King World News interview for a more complete explanation.

Or it could mean that investors have finally figured out that all possible economic outcomes are good for gold. If Washington’s prodigious borrowing sends the economy into inflationary overdrive, capital will pour into precious metals. If QE2 was a bust and the economy starts to sink, that guarantees an even bigger stimulus plan in the near future. Either way, gold is the one clear winner.

Or maybe  the marketplace is finally catching up with years of price suppression and bringing gold into line with the amount of paper currency that exists in the world. Estimates of the gold price that’s necessary to bring about this balance vary, but they’re all far higher than the current price.

No, You’re Not Imagining It – The Gold Miners Are Tanking

June 20, 2011

Editor’s Note: With the Dodd-Frank Act coming into effect, over the counter trading of gold and silver may be illegal starting on July 15th (or at least that is what some companies apparently now believe). FOREX sent out the following cable last week:

We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011… We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.”

We shall see. But could a future change in trading laws contribute to a recent  flight from Gold Mining shares?

By JOHN RUBINO
Dollar Collapse
June 19, 2011

Conventional wisdom — backed up by years of observation — states that gold mining shares tend to outperform the underlying metal in good times because they’re “leveraged to the price of gold.” That is, their extraction costs are more-or-less fixed, so when gold rises, most of the increase flows directly a miner’s bottom line, increasing its earnings at a rate that exceeds the metal’s move.

With gold near a record, most miners should put up ridiculous earnings in the year ahead, which should make their shares act like tech circa 1998, right?

JACKPOT: Traditionally, mining stocks have kept their lead over metal markets.

Nope. The biggest miners, whose shares populate the GDX gold miner ETF, did outperform gold (represented here by the GLD ETF) during most of its recent epic run, just as you’d expect. But in April the two trends diverged, and lately the divergence has become a chasm. Gold is up 22% in the past 12 months and the big miners are, as a group, virtually unchanged.

This is painful and humbling for investors who bet on gold by loading up on mining shares, only to discover that they were right on the macro but wrong on the implementation. But one person’s pain is another’s opportunity, and the market appears to be offering a whopper here.

Assuming that the long-term relationship between gold and the miners holds — and there’s no reason to think it won’t — then the trend lines will converge at some point in the coming year. This can happen in several ways: They can both fall, but gold more than mining shares. They can both rise, but mining shares can rise more. Or gold can tread water while the miners go up.

Which means there are two ways to play it: Buy the miners and ride them, which will work if gold goes up. Or short gold and buy the miners, in which case you don’t care where gold goes as long as the miner/metal relationship reverts to normal. The first is simpler but only works in a rising gold price scenario. The second is an arbitrage that should work no matter what gold does in the year ahead, though it carries an emotional price, since shorting gold is disturbing on a lot of levels.

On the other hand the idea of making money while being short gold — in the middle of a global currency meltdown — has a certain contrarian appeal.

One final thought: If the big miners are underperforming because of fears that they can’t replace the reserves they’re consuming, then we’re in for a buyout binge as they use their rising cash flow to gobble up the juniors with the most accessible reserves. So the small-cap miners will end up being the best part of this market.

LIBYA: ‘V’ PROFILE COMING FOR OIL PRICES?

March 28, 2011

21st Century Wire
MARKET FLASH
By Andrew McKillop
March 28, 2011

Coalition bombing in Libya has transformed the prospects for embattled insurgents, now sweeping further and further west from their Benghazi stronghold. Likely ground support, or at least weapons supply and military specialist manpower from the coalition can speed the coming encirclement and defeat of the Gaddafi regime, in its Tripoli heartland.

As Gaddafi loses ground, oil prices should slide and set to a V-profile in forward trading, with the rebound leg coming after the sequels of Libyan regime change are better mapped.

Oil forwards, already softening this week from a mix of other factors, may show a sharp downward blip, perhaps trimming prices for US WTI to the key $99/bbl psychological price level, below which support can weaken through a range of up to 10 dollars on continuing bearish sentiment.  The pace of events in Libya and ground advance by the insurgents will fix the time interval for this price strategy.

Countervailing trend across the Sarab world, especially the Middle East can include heightened tension in Bahrain, Yemen, Syria and Jordan. Any overflow to street protest in Saudi Arabia can only be oil price positive.

JAPAN RUNS BOTH WAYS

To the extent Japan can manage and sustain national reponse to the twin disasters of massive tsunami damage and nuclear meltdown, or near-nuclear meltdown at its Fukushima 6-reactor complex, Japan’s role as third biggest oil importer in the world will always tend to lift oil prices. But if the nuclear disaster becomes a multiple-Chernobyl leading to accelerated decentralization and population reduction of Tokyo and its region – long planned and discussed at cabinet level but never moved to application – the bets are off for Japan quickly racking up its oil import demand.

Sombre scenarios are now on the Web for what happens if the world’s third biggest economy goes into something a lot worse than recession.

Oil is not favoured in that sombre scenario – but the food commodities are. Japan’s need to import food will stay strong under any hypothesis, any scenario and nuclear disaster wiping out as much as 20 000 square kilometres of food producing areas can only, and powerfully reinforce that analysis.

This generates a two way oil-and-soft commodities strategy for generating investor value, with a strong focus on the best crossover soft commodities.

These are provided by sugar and the major traded vegetable oils, palm and soy. Both have considerable upside potential at this time, with sugar being exposed through its close correlation with petroleum oil to the largest predictable range of price movement in the coming few weeks. Sugar prices may grow by large amounts from this week’s price range, attain a peak, and fall with oil, while palm and soy oil are likely to show sustained price appreciation in choppy trading.

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