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  • Food Pressure, Globally and Locally

    Wheat - Daily Price - Commodity Prices - Price Charts, Data, and News - IndexMundi
    Chart below is from there more or less.


    It seems we are having good harvests globally bar some drought induced conditions in the U.S. and recovering pockets from drought elsewhere.
    What seems odd (we are in the harvest seasons btw from June through Sep on various major crops)
    is that the prices are not falling. The demand just soaks up everything.
    http://www.bloomberg.com/news/2013-04-08/china-buys-1-million-tons-u-s-wheat-after-global-price-drops.html
    Somewhere there are shortages... Now Syria is obvious due to the war and prior drought loss of planted acreage and whatnot. Iran also is recovering from the drought. India is in a similar position actually.

    Was wondering people what your perspective is on the ground how much things used to cost and how much they are now. What people are doing to change or their habits etc...

    I ll chime in on my thoughts how it brings things 'round to geopolitics eventually. But the micro cycle from internal re-distribution is interesting. Ergo supply chain failures and bankruptcies by distributors would be telling of a major aspect, such as consumer demand not eating the pass through of costs fast enough. etc...
    Attached Files
    Originally from Sochi, Russia.

  • #2
    The reason I posted the price of wheat is because it is both primary and secondary commodity for both direct and indirect meat consumption. Ergo forrage varieties of grain that are lower grades sell at a discount to the price somewhat but still follow it.

    Ergo prices of meat are influenced and have to reflect grain prices somewhat.
    What is happening is meat producers are not able to pass on this cost to consumers. How do I know this? A few companies have it in their filings that their feed costs are rising but their meat (poultry, beef, etc) prices per lb to end users are stagnant or falling especially relative to their costs of feed.

    Problem is if wheat hits 500 or so bucks a ton QE will have to be stopped because at some point people will simply riot and revolt because food prices go parabolic. Wheat and other grains are more or less in everything and are staples. That's why we have Egypt etc... going up the wall.
    Meat prices soar in Algeria despite massive imports
    Currently, chicken is sold at 350 to 400 Algerian dinars ($4.2 to 4.8) per kilo, compared to 200 dinars ($2.4 dollars) a week earlier. Mutton and beef were sold at 1100 dinars ($13.2) to 1500 dinars ($18) per kilo, beyond the reach of North African country’s middle class.

    Out of the 380,000 tonnes of red meat consumed annually in Algeria now, 50,000 tonnes (frozen) is mainly imported from Brazil, India and Europe.
    Last year story but still gives some perspective. Notice it took a week just one week of constraints to get 100% in food prices.
    We of-course won't see anything officially at least because CPI does not include food and energy because because central banks don't need food.

    To me the troubling sight is that the harvests for grains are set to be good, if they in fact turn out to be good it seems that prices are not going down. Ergo the embedded costs of grain harvesting has risen and won't fall beneath a certain amount. So we have moderate to accelerating food inflation, globally. Transport/harvest/processing costs have risen due to oil being around 100+ bucks a barrel. So the further you go out the more impact it has from the source. But the external bidders do impact internal prices paid by producers.
    China’s surging grain imports more than double 2011
    Marginal impact of a 100 million tons more consumed in China is not really felt yet. But the surge in imports is showing up in prices from Soy, Corn, Wheat etc...

    If you take the view that we have good harvests and still very strong demand any material shortage somewhere creates a very strong event for prices to go through the roof. The problem with this is dynamics that it plays on internally in each country.

    Ergo distribution models are different everywhere and credit impact on financing feed for producers that go negative cashflow as they hit the consumer demand wall via meat costs not passing through feed costs.
    Imagine 3 countries.
    Country A has meat producers with weak capital base and finances most of the feed on short term contracts.
    Country B has meat producers with strong capital base which use their own operating cash flow to finance feed for producing meat.
    Country C has meat producers which mainly export and have low feed costs due to availability of forage on their fields and low use of feed for cyclical reasons.

    Behavior by each will be different.
    A will most likely continue as it has because it is not risking its own capital and insolvency brings the financier and not just the company ruin. Furthermore both will try to ignore the problem by A increasing production even though it is loosing more per lb of meat it produces because it expects to make it up on volume somehow as passing costs or margins through to consumer is hoped for.

    B will cut production to loose less money since it is their own capital and wait for the cycle to turn to re-enter and increase production. (This is the most rational action)

    C will increase production to benefit from imbedded low costs but sooner or later what happens is they also run into too much supply and have to cut their herd down.

    Some countries have a mix of these and some others. Some have a majority of a type and various variability.

    This is where local conditions come into play.
    Argentina[or to be more precise companies that produce meat in that country] are more or less C, it cut its herd just like Texas because costs made product unprofitable even with a low imbedded costs.

    You could say that I am making this similar to Hyman Minsky's
    b.hedge, c.speculative, and a.ponzi units. Except it is applied to food production and C is not really speculative because they are in fact eating the cost thus they could have hedged, unfortunately the dynamics of those operations ergo imagine you have a 100k acres and large herd that you want larger and larger until you realize that you are breaking even and if you do not cull it you go down. So you took a speculative position because it was the easiest to execute and continue executing since margins were falling increasing your herd made it possible to eek out marginal profitability.

    C takes a while to rebuild herd numbers and when its smaller the impetus on profitability AND flexibility to actually do something about it is FAR larger.

    A firms usually are the ones that fail and create the dynamic where their implosion helps clear the market. The problem from a certain stand point is they render lots of other firms broke and insolvent up and down the supply chain. Think of shippers, buyers of their product, packaging providers, etc... You also have to take view that their size makes their dominance in finance sense able for them to survive so long and shift cash flowing through their channels while essentially financing itself off of suppliers up and down the chain. It's a very very co-dependent model. So it is not as a ponzi in Minsky's sense because there the ability of the unit is marginal at best here it is very real and impacts very widely.

    B will survive the cycle because it goes with it when its profitable it scales up when it stops being so it exits or scales down to operating or recreation of business marginal costs.


    Now the international impact on A firms in a dynamic stretches their ability to finance themselves and operate way way way beyond their ability to survive not just because prices go the extra mile on foreign demand but because those suppliers will bend into the wide system of A firms and finance them essentially through various means. [Imagine I make a contract with you backed with a deposit that you use as a borrowing with a lender and you already have proof of my ability to convert prior cash flows from such things, ergo credit expansion into an adverse cycle more or less is very likely]

    P.S. I am so sleepy I'll come back to this tomorrow more clearheaded today was a good beachday very warm sun not too hot and small breeze.
    Originally from Sochi, Russia.

    Comment


    • #3
      Don't mess with economy. You can observe it. You can study it. You can influence it, but I don't recommend it. Trying to control the economy will only lead to disaster.

      Let those people work it out. Leave them be. They will reach an equilibrium one way or another.
      "Only Nixon can go to China." -- Old Vulcan proverb.

      Comment


      • #4
        Originally posted by gunnut View Post
        Don't mess with economy. You can observe it. You can study it. You can influence it, but I don't recommend it. Trying to control the economy will only lead to disaster.

        Let those people work it out. Leave them be. They will reach an equilibrium one way or another.
        The economy is global. Those people aren't messing with it but much larger economies are. Hence, they will not be able to work it out.
        In the realm of spirit, seek clarity; in the material world, seek utility.

        Leibniz

        Comment


        • #5
          They will reach an equilibrium one way or another.
          If they don't find a way, nature will.
          No such thing as a good tax - Churchill

          To make mistakes is human. To blame someone else for your mistake, is strategic.

          Comment


          • #6
            Originally posted by gunnut View Post
            Don't mess with economy. You can observe it. You can study it. You can influence it, but I don't recommend it. Trying to control the economy will only lead to disaster.

            Let those people work it out. Leave them be. They will reach an equilibrium one way or another.
            I am not messing with it I am trying to give you a scope of the picture how things are working in this sector and to some degree are distorted.

            Ergo A companies have been growing by leaps and bounds even though economically based on their own issues they shouldn't

            The problem is when the cycle turns the ever dependent swath of companies supporting them gets squeezed and they all suffer far more than if the adjustment happened sooner. What is troubling is that when you over-finance inefficiency and
            A companies push out B and C companies the recovery for food production is much slower. Since both of the latter won't participate until they can earn real time returns. The problem is this takes out so much capacity short term and leads to such a spike food price wise that it makes the populations so uneasy.

            The Algerian example I made was of this. 1 week for 100% price change for retail consumer. To us it seems the prices are insane but to the producer it may be that their margins are actually razor thin due to various factors and may in fact be negative.
            Originally from Sochi, Russia.

            Comment


            • #7
              I'm not sure what might have sparked the comment about $500/ton wheat and QE (the Great Deflator), but my first thought is to balance the single price data observation with on on exports and another on imports. I'm traveling, so not in a position to dig up the numbers myself.
              Trust me?
              I'm an economist!

              Comment


              • #8
                Originally posted by gunnut View Post
                Don't mess with economy. You can observe it. You can study it. You can influence it, but I don't recommend it. Trying to control the economy will only lead to disaster.

                Let those people work it out. Leave them be. They will reach an equilibrium one way or another.
                Agreed.

                When you start jacking with a complex system to force results more to your liking, you'd better be prepared for the unintended consequences.

                Comment


                • #9
                  Originally posted by gunnut View Post
                  Don't mess with economy. You can observe it. You can study it. You can influence it, but I don't recommend it. Trying to control the economy will only lead to disaster.

                  Let those people work it out. Leave them be. They will reach an equilibrium one way or another.
                  That is the problem... the central banks are pumping out make believe money everywhere distorting any attempt at equilibrium.

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