Food Crisis on the Horizon
I’ve been watching Nogger’s Blog for awhile now to keep an eye on the agriculture sector. Here are some recent disturbing highlights:
Wheat: Living On The Edge
According to the USDA the world’s largest wheat exporters in 2008/09 will be:
2008/09 (MMT) 2009/10 (MMT)
---------------------------------------------
US 68.0 57.0
EU-27 151.7 134.4
Russia 58.0 63.7
Canada 28.6 23.4
Australia 21.5 22.2
Ukraine 25.9 18.0
Argentina 8.3 7.7
---------------------------------------------
Total 362.0 326.4
---------------------------------------------So the top six exporting nations that account for over half of world production and 87.5% of global trade in wheat are set to see their output fall by around 35.6 MMT in the year ahead.
Indeed, it looks a nailed-on certainty that Argentina won’t even have any wheat to export at all in 2009/10, and will probably be a net importer (despite the fact that the USDA currently has them down to export 4 MMT next season).
So it must be world demand that’s falling then? The world’s top six importers, and their likely requirements for 2009/10, according to the USDA:
2008/09 (MMT) 2009/10 (MMT)
---------------------------------------------
Egypt 9.5 8.5
Iran 8.5 6.0
EU-27 6.5 6.5
Brazil 6.0 5.7
Algeria 5.6 5.4
Japan 5.5 5.5
---------------------------------------------
Total 41.6 37.6
---------------------------------------------So the top importing nations are seen using 4 MMT less in 2009/10, well that’s handy, if they were planning on buying it from Argentina, they’ll probably find that it isn’t available anyway!
So where’s the rest of the production shortfall coming from, how are we going to feed the world? Global stocks of course. So with global wheat stocks having been in steady decline since 1998/99, we’ve had one decent harvest to help replenish them before we start digging into them again.
and this:
World Grain Demand To Outstrip Production In 2009/10
After a bumper harvest in 2008/09 helping replenish dwindling global grain stocks, it’s back to business as usual in 2009/10 with world demand outstripping supply by 15 MMT, say the International Grains Council.Global grains production is projected at 1,721 MMT in 2009-10, compared with the demand of 1,736 MMT, say the IGC. The production number is down 61 MMT from output 1,782 MMT last year.
“World grains production is expected to fall short of use (demand) in 2009-10, eroding some of the gains in stocks achieved after the bumper 2008 harvests,” they say.
There will be more use of grains for food and industrial purposes in 2009/10, particularly for ethanol production, the IGC said.
The IGC estimate global wheat output to be down by 5 per cent at 652 MMT (4 MMT higher than the current Nogger estimate – see table to the right) in 2009/10, compared with 687 MMT in 2008/09.
Grain production tightening, stocks diminishing, demand rising from biofuels sector, crude oil prices rising.
Deja vu anyone?
This probably won’t translate into shortages at QFC for a long time, but it is a trend to watch.
We’re only 9 months past the deep credit crunch that left businesses (including farms) unable to finance their productive activities, so we’re going to be entering the time where the production that would have been coming forth will start to not show up. Prices are still rising very slowly, but that will change as production shortfalls like these are realized.
As I’ve said many times, deflation only wins if demand can fall faster than production. New cars and houses are completely different than food and energy on the demand side.
-Robert
