Peak Food

economic depression will increase hunger
climate change and lack of synthetic fertilizer may decrease food production

related page:

"Modern Agriculture is the use of land to convert petroleum into food."
-- Albert Bartlett

"The current world food crisis is a reflection of the disparities, inequities and contradictory forces at play in the global economy. There is a bottom billion starving to death while there is a top billion that are eating themselves to death. Food is becoming unbearably expensive in poor countries, while it is cheaply available in advanced economies. The United States spends over $87 billion conducting a war in Iraq while the United Nations estimates that for less than half that amount we could provide clean water, adequate food, sanitation services, and basic education to every person on the planet."
-- Arthur G.O. Mutambara, Reflections on Africa Day, Rethinking the African Economic Model. May 25, 2008

THURSDAY, MAY 08, 2008
Peak Food: Blaming the Victims

Eco-Economy Indicators are twelve trends that the Earth Policy Institute tracks to measure progress in building an eco-economy. Grain production is the best indicator of the adequacy of the food supply. On average, half the calories we consume come directly from grain and a large part of the remainder come from the indirect consumption of grain in the form of meat, milk, eggs, and farmed fish.
Grain Harvest Indicator
This year’s [2006] world grain harvest is projected to fall short of consumption by 61 million tons, marking the sixth time in the last seven years that production has failed to satisfy demand. As a result of these shortfalls, world carryover stocks at the end of this crop year are projected to drop to 57 days of consumption, the shortest buffer since the 56-day-low in 1972 that triggered a doubling of grain prices.


ORGANIC CONSUMERS OF AMERICA - Agriculture directly accounts for 17% of all the energy used in the U.S. petroleum-derived agricultural chemicals such as synthetic fertilizers (12 billion pounds per year), pesticides and herbicides (a billion pounds per year), account for more than half of all on-farm energy use. According to the Earth Policy Institute, the U.S. food system, from actual food production (synthetic fertilizers, pesticides, etc.), energy for irrigation, transportation, to refrigeration packaging & preparation, uses enough energy equal to supply all of France's annual energy needs.
Food today travels farther than ever, with the average item of food traveling an average of 1600 miles from farm to fork. Processed foods, on average travel 3600 miles from farm to fork. As food travels farther, energy use soars. According to Brian Halweil of Worldwatch Institute, a typical meal bought from a conventional supermarket chain uses four to 17 times more petroleum for transport than the same meal using locally produced ingredients. . .
But even with a major reduction in food transportation mileage, rising oil prices will inevitably inflate food prices, unless food is grown organically (without synthetic fertilizers, pesticides, etc.). When food is produced organically, the need for pesticides and synthetic fertilizers, which require oil to manufacture, is eliminated. . .



Japan draws up manual for possible food crisis

TOKYO Jan. 3 (2001) Kyodo - The government has drawn up a manual to prepare for a possible severe food crisis in the future that features a switch from rice to high-yield potato and other root vegetables as the nation's main staple, government sources said Tuesday. The emergency food supply policy, drawn up on the basis of the 1999 agricultural basic law, assumes a number of possible threats -- abnormal weather in Japan, poor harvests in foreign countries and a decrease in agricultural production due to global warming and disruption of world trade by regional conflicts.
The sources said the government is expected to endorse the manual later this month.
The handbook assumed as a worst-case scenario a total suspension of food imports. In this case, potatoes and other tubers should be cultivated as a staple food instead of rice with output increased 4.5 times from the current level, it said.
The manual also proposed that production of flowers, feed for livestock, low-calorie vegetables and fruits be decreased so that more farmland can be allocated for raising tubers. Riverbeds and golf courses could also be turned over to agricultural production.
The government will also consider purchasing staple products, imposing price controls and taking over distribution,
according to the manual.
The food policy defined two levels of food crisis. Level 1 refers to a drop in the supply of wheat and soybeans by 20% and level 2 a cessation of imports threatening provision of the minimum energy intake for an adult per day of 2,000 calories.
The manual said the government will only control food production in case of level 2.
The government would establish an emergency task force in both cases and take measures including the release of food supplies such as rice from state storage, the sources said.
Under the level 2 scenario, the government will ensure farmers have sufficient access to fertilizers and fuel to guarantee at least 2,200 calories per person per day by increasing production of potatoes, wheat and soybeans.
Japan has a 40% self-sufficiency rate of foods on a calorie basis, ranking bottom among major industrial nations.
The government endorsed a basic food plan in March 2000 in line with the new agricultural basic law focusing on guaranteeing a stable food supply to the nation.
The plan targets raising the self-sufficiency rate to 50% in 10 years. (no longer linked)

Global Cod Stocks May Be Depleted by 2020
  The Associated Press
  Thursday 13 May 2004
  GLAND, Switzerland - The world's cod stocks could be wiped out by 2020 because of overfishing, illegal catches and oil exploration, the environment group WWF said Thursday.
  WWF -- the World Wide Fund for Nature -- said the world's largest remaining cod stock, in the Barents Sea, is under particular threat.
  In a report, WWF said the world's cod fisheries are disappearing fast, with a global catch that declined from 3.42 million tons in 1970 to 1 million tons in 2000.
  "If such a trend continues, the world's cod stocks will disappear in 15 years time," said the group, which is known as the World Wildlife Fund in the United States.
  In North America, the catch has declined by 90 per cent since the early 1980s, while in European waters, the catch of North Sea cod is now just 25 per cent of what it was two decades ago.
  "Overfishing of cod continues because fisheries policies are driven by short-term economic interests," said Simon Cripps, head of WWF's oceans
  The Barents Sea, north of Norway and Russia, is one of the world's richest fishing grounds, accounting for half the global cod catch. But although numbers there appear healthy, this may not last, said WWF.
  High fishing quotas for 2004 are unsustainable, the group maintained. Some 110,000 tons of cod are also believed to be caught there illegally every year, further denting stocks, it said.
  "The onus is on Russia and Norway to prevent the Barents Sea cod stock suffering a similar fate as the Canadian cod stock, which collapsed in the 1990s and has not yet recovered," Cripps said.
  WWF also said it believes Barents Sea cod are threatened by expanded shipping and oil exploration plans.
  On Tuesday, Norwegian authorities said the potentially oil-rich sea would be reopened for exploration, after a pause to address environmental concerns about protecting the fragile ecosystem in Arctic waters.
  Russia, meanwhile, is planning to boost shipping by developing a new export route via its ice-free deep-water port of Murmansk, which would allow supertankers to economically take oil to the U.S. East Coast.

Are we heading for Peak Food?

As a loyal Whiskey & Gunpowder reader and personal friend of Byron King, I must say that not only do I subscribe to the Peak Oil theory, I am experiencing it first hand. As I write this, I am only a few short minutes from the border of Russia at my home in Estonia. Yes, Estonia, the small Baltic country with the big heart and the taxes to match it.

Taxes are a big problem here, but the bigger one is heating fuels. With winter right around the corner and crude oil hitting record highs of almost $83, prices here are surging. Our natural gas and heating oil bills here are going to be three times as much this year and basically that will break the bank for many in this tiny country. The problem is just getting worse as Russia tightens the screws on its natural resources in the region.

Now, Peak Oil may be very familiar to you as a Whiskey reader, but another peak phenomenon may not — Peak Food. Russia recently announced it may curtail wheat exports due to low global stockpiles and that has sent wheat to above $9, driving everything from bread to pasta exponentially higher. The worst could be yet to come.

I have to go chop some more wood for our stoves now. Really, I'm serious. Peak Oil is here. Peak Food will be here soon, too.

What is Peak Food?

There have been few markets in my almost 20 years of trading that have been as exciting as the grain markets have been over the past two years. In my opinion, the best is yet to come.

In the commodities world, energy, metals, and stock indexes have been the most active futures contracts — and the most talked about — for years. But like so many things in the commodities industry, that's changing too. Sure, oil and gold commentary still rolls off the lips of the various business news channel anchors. But nowadays, in the same breath, you may hear them talking about corn, wheat, or even soybeans. Why the sudden change?

The big push by individual speculators, hedge funds, and others into the agriculture sector in such a short time has been unprecedented. A great deal of this move is a direct result of the ethanol boom and the record corn prices it has helped to generate.

It's pretty ironic that the modern commodities markets owe their success to the original grain markets that started it all. Back only a couple of decades ago, there was no such thing as an energy futures market or a stock market index. In fact, the grain markets were the first organized futures contracts when many of the exchanges started trading. As the markets developed, grains took a bit of a backseat and the financial and energy commodities seemed to take the lead.

Now with the emergence of the electronic trading market and the ethanol boom, grain futures are soaring. The global demand for agricultural and soft commodities is so significant that these markets are not only important, they are vital for price discovery once again.

The simple facts of the matter are that the global population is exploding and exponential increases in demand from countries like China and India are straining a system that is already overloaded by demand and has been taxed by weather problems globally.

The wheat crop has been hit especially hard this year as droughts, floods, disease, and even frost have taken their toll. Wheat has risen to $9 a bushel, and $10 is entirely possible later this year. Meanwhile, the soybean complex is also soaring, as pent-up demand, especially from China, is keeping this market very well supported.

It's important to realize that not only do we have exponentially higher demand for soybeans from a growing world population, but we also have the increased feed demands of a growing cattle population in answer to more demand for beef. Soybeans are also a victim/beneficiary of the biofuel boom.

Combine all of these factors and throw in a little disease and bad weather and you have a recipe for a very hungry world, indeed...and much higher prices.

This has been an incredible year for agricultural commodities, and many "experts" have been telling me for the last year that I was crazy to buy these commodities at such high levels.

Of course, they started telling me that when corn was at $2.20 a bushel and wheat at $5.50. Today, corn is trading solidly over $3.50 and wheat is trading close to $9. The bad news for wheat supplies just keeps rolling in. In the latest round of bad news, Australia slashed its harvest forecast 31 % because of dry weather. Wheat is surging as importers line up to buy whatever wheat they can. Global inventories are heading for a 26-year low.

Soybeans have outperformed expectations, too, as global demand has put a solid floor underneath prices.

Is all the bad news priced into the grain markets at this point, and have we finally seen the top for the grain rally? Think again. The biggest disaster for the grains may just be getting started.

According to my sources at farms in Minnesota and Iowa, diseases may be setting in, and this could be devastating to the wheat, bean, and corn crops.

Corn could be hit hard after a long summer, and hot and dry conditions and hail affected corn yields in Minnesota. The weather conditions favor the development of a disease called ear rot. Reports of ear rot have been coming in from several different areas, and the quality of grain that comes off these affected fields will almost certainly be reduced.

Meanwhile, things over in the bean patch are not faring much better. According to reports, early defoliation and death in patches of soybeans has occurred recently in fields across Minnesota.

According to Agriculture Online, "Although numerous soybean fields have started to mature and have suddenly turned yellow in the past week or so, it is obvious in many areas that the yellowing and plant death have been accelerated well beyond what would be typical."

Sure, bean and grain prices are very high already — in fact, some of the prices we have been seeing for the agricultural commodities in the last few years are nothing short of astounding. It's important to recognize, though, that demand has also been astounding. Demand is almost certain to outstrip supply, especially in wheat and soybeans. So even though we are seeing record prices, they may climb further as we head into winter. Therefore, some exposure to the agriculture sector in your portfolio seems like a prudent idea.

Clearly, the agricultural bull market is far from over, but that's not to say that we won't see some extreme volatility. Overall, though, the indications are pretty clear that staple commodities like grains are going to be more in demand and less in supply as time goes on.

So my forecast for the grain markets is as follows: Higher, but volatile. The really nice thing about commodities trading is that it's just as easy to bet on falling prices as on rising prices. So when the time does come, as it does in every market, we will be just as eager to go short and try to profit on the downside. For now, though, the trend is our friend and the trend is up.

By Kevin Kerr for Whiskey and Gunpowder Whiskey & Gunpowder is a free, twice-per-week, e-mail service – for more from the team, go to