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Generational Dynamics Web Log for 9-Feb-08
Wheat price rises blocked by commodities market price increase limits

Web Log - February, 2008

Wheat price rises blocked by commodities market price increase limits

American wheat stockpiles are lowest since just after World War II.

I've been writing about skyrocketing world food prices since 2004, emphasizing their effects in creating new and worsening pockets of starvation, especially in large mega-cities around the world. I've described how it is that a man who can't feed himself and his family has little to lose by killing others for food or by joining the army to wage war.

Wheat prices 2003-Present <font face=Arial size=-2>(Source: prudentbear.com)</font>

Wheat prices 2003-Present (Source: prudentbear.com)

Each time there's a price increase in food, there's always a politician somewhere who calls it a temporary problem, saying that food prices will soon be falling again.

And yet, they haven't. The price of food had been generally falling for decades, thanks to the Green Revolution. But around 2000, all that changed, and prices started rising. By 2004, the price rises were clearly beginning to accelerate, and the rate of acceleration has been increasing since then.

Just a few years ago, wheat used to cost $3.50 per bushel on world markets. The last time I wrote about wheat prices, the cost had surged to over the milestone price of $10/bushel.

Prices pulled back by a few cents briefly, but that was only temporary.

Last week, the price of wheat rose so rapidly that trading had to be stopped because the exchange limit on price increases had been reached. That happened EVERY DAY this past week. The limit is 30¢ per bushel per day, so the price rose $1.50 this week alone to $10.93 per bushel on the Chicago Board of Trade (CBOT). The price of wheat has more than doubled in the last year.

Starting next week, the CBOT is doubling its daily price limits to 60¢ per bushel per day.

According to the Feb 28 USDA report. US stockpiles of wheat are falling, and are down 40% from a year ago.

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UN World Food Program to institute food rationing: Surging food prices are causing food riots around the world.... (26-Feb-08)

Wheat price rises blocked by commodities market price increase limits: American wheat stockpiles are lowest since just after World War II.... (9-Feb-08)

Wheat prices surge above $10 per bushel, sparking little concern: World food stocks dwindling rapidly, according to the UN.... (23-Dec-07)

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These are the lowest stockpiles of wheat since just after World War II, when America was exporting wheat around the world to prevent post-war starvation. (When I was in school in the 1950s, I recall my teachers saying with pride that "America is the bread basket of the world.")

According to analyses quoted by Bloomberg, there are several reasons why the price of wheat keeps rising unstoppably:

"We had the early frost last year and drought pretty much worldwide, and we kept demand at a rapid pace, so our stocks started to dwindle."

Last year, bad weather damaged crops from several of the world's biggest producers.

U.S. wheat yields were hurt by a freeze, followed by excessive rainfall, and then drought hurt production in Canada and Australia. Harvest of spring wheat was limited after drought hurt plants last year in the northern Plains and in Canada.

Rising food consumption in China.

India, the world's second-largest consumer of the grain, may import 68 percent more [68%!!!!!] this year.

Increased demand for corn and soybeans used to make alternative fuels also are eroding global crop supplies.

"We are seeing a demand curve largely from Asia and augmented by the biofuel discussion," said Monsanto Co. Chief Executive Officer Hugh Grant. "I don't think we have seen this since the 1940s, when there was a global rebuilding effort after World War II."

The survivors of World War II were very well aware of how dangerous it is to let people starve anywhere in the world. Starving people do not negotiate.

More and more, I find myself using the phrase "tipping point" in these articles. The continuing downward trend in stock share prices will soon be a tipping point that will trigger a chain reaction of hedge fund bankruptcies.

And this incredible never-ending, ever fast speedup in surging food prices cannot simply cannot go on much longer. It wouldn't surprise me to learn that there tens of millions more people each month foraging through garbage dumps, hoping to find something to feed their wives and children. In this case, the tipping point will occur when prices go so high that a war can't be prevented.

For the most part, today's Boomers and Gen-Xers don't have a clue about what's going on. They'll learn soon enough. (9-Feb-08) Permanent Link
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Generational Dynamics Web Log for 9-Feb-08 Wheat price rises blocked by commodities market price increase limits

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Generational Dynamics Web Log for 9-Feb-08
Wheat price rises blocked by commodities market price increase limits