Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Agricultural Commodities Peak Food

Commodities / Food Crisis Aug 11, 2015 - 08:33 AM GMT

By: Ned_W_Schmidt

Commodities

Last we visited on Agri-Foods the concept of Peak Food was introduced. That shift in the fundamentals of global food production was identified as adding support to Agri-Commodity prices. For despite the negative sentiment on commodities and "China is collapsing" group think, Agri- Commodity prices continue to show strong resilience, as shown in the chart below right. As prices of Agri-Commodities do not move in unison, the Agri-Food Price Index has been essentially unchanged for about three years. For example, recently hog prices have been weak while U.S. cash corn hit a new 52-week high.


In recent times the "China is collapsing" view has become a popular theme. Despite that thinking, Agri-Commodity prices are down less than 3%, on average, in the past four weeks. After taking into consideration seasonal factors, the price response to the popular views on China's economy has been tiny. Reason for that is Chinese imports of grains have been exceptionally strong, up more than 60% from a year ago through end of June.

Peak Food was the name given to the results of research by Seppelt, et al(2014) published as "Synchronized peak-rate years of global resources use" in Journal of Ecology and Society. That research was made popular in "Have we reached 'peak food'? Shortages loom as global production rates slow" (Bawden,2015). For that reason we credit Bawden with the term Peak Food.

In their research Seppelt, et al studied the long-term production records of 27 renewable and non renewable resources. Our interest is primarily with the Agri-Foods they studied, which are classified as renewable resources. 17 Agri-Commodities were studied, from cotton to corn to rice and soybeans. Included were the bulk of the Agri-Commodities that feed the world.

Focus of that research was on the year-to-year change of production of these commodities. What they discovered was that the annual gain, or increase, of production for most of those Agri-Commodities had peaked. Of the 17 Agri-Commodities studied, 16 had Peak Years in the time frame 1985-2009. Production of those Agri-Commodities is rising, but the rate of increase is slowing. That reality has strong implications for future Agri-Commodity prices as demand continues to rise.

Let us explore for a minute the implications of Peak Food from Seppelt, et al. Focus was on the year-to-year production change for the commodities. Below is a stylized chart, meaning that it paints the picture rather than portrays specific data, of the trend in annual global production change, green bars. This research concluded that the most likely year of maximum production gain for corn, as one example, occurred in 1985. Up to that year the annual gains in production were rising, and since then have generally been smaller each year.

Annual Change of Corn Production

Red arrow approximates what the total global production curve would look like given the shape of the green bars. Total corn production continues to rise, but at a much slower rate. That happens as each year's potential increase of production becomes smaller, and we might add more expensive. When total production is as the red curve depicts, the sensitivity of prices to an increase in demand is higher. Price of corn should rise over time by a greater percentage than does annual production.

This analysis says nothing about what can happen in any one country or region in a particular year. For example, North American corn harvest was especially good in 2013 and 2014. That was due to the weather rather than a change in the longer term picture. As evidence of that we note that U.S. cash corn price in the U.S. is less than $4/bushel while at the same the dollar equivalent price in China is more than $9/bushel. Further, note that U.S. cash corn recently made a new 52-week high.

In the above discussion we implied a precision in the estimate for corn's peak year with which we should be careful. Based on the research, 1985 is the most likely peak year. In statistical terms that means it is the best estimate, and that the probability of a later year or an earlier year is 50%.

In table below we provide the estimates of peak years from Seppelt, et al for the major Agri- Commodities. Most likely peak year for each is in middle column. Final column is what might be described as potentially the latest possible year for the peak. Probability that Peak Year is later than the last column is 2.5%. For our purposes this means that we can have considerable confidence, 97.5%,that the Peak Year for corn production was before 2007, third column, and most likely between 1985 and 2007.

So, what does this all mean? First, each year in the future increasing global production of food will become more difficult. Second, rising global demand means that prices are going higher. Third, onlywayannual production gains can be increased is byrasing prices to perhaps unacceptable levels. China has sustained corn production only through high prices, above $9/bushel and more than twice those of the U.S. Fourth, how will world feed India? Indian food consumption has the potential to "double" in the next decade. Fifth, Agri-Equities, shares of those companies involved in Agri- Food production, should benefit in a significant manner from this situation.

References:

Bawden, T. (28 January 2015).Have we reached 'peak food'? Shortages loom as global production rates slow. The Independent.

Malthus, T. (1798). An Essay on the Principle of Population. Amazon Kindle.

Seppelt, R., et al. (December,2014). Synchronized peak-rate years of global resources use. Journal of Ecology and Society.

Ned W. Schmidt,CFA is publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food Super Cycle, and The Value View Gold Report, a monthly analysis of the true alternative currency. To contract Ned or to learn more, use either of these links: www.agrifoodvalueview.com or www.valueviewgoldreport.com

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules