The government and mainstream media pundits love to tell us how everything is under control, Ben Bernanke can inflate the currency to infinity, the purchasing power of your dollar will remain intact. Well ... unless you eat that is, or like to keep your house warm ...
And just to make sure the point of the coming price crunch is not lost, the FT has just come out with an article titled, not too subtly, "World moves closer to food price shock"
The world has moved a step closer to a food price shock after the US government surprised traders by cutting stock forecasts for key crops, sending corn and soyabean prices to their highest level in 30 months.
The price jump comes after the UN’s Food and Agriculture Organisation warned last week that the world could see repetition of the 2008 food crisis if prices rose further. The trend is becoming a major concern in developing countries.
Oklahoma State University economist Derrell Peel told Drovers/Cattlenetwork this week he expects the beef cow herd to total about 31.1 million head, which would be the lowest beef cow inventory since 1963. The number of cows and operations both have seen decline for 35 years.
Fewer cows and fewer feeder cattle contributed to rising prices during the last half of 2010, and early 2011. And strong export demand has fueled a rally in fed cattle prices early this year. The declining inventory has meant better prices, yes, but the long-term effect of a significantly reduced cow herd has many analysts concerned.
Cattle and hog producers should also be concerned that their products are contributing to rapidly escalating retail food prices, a phenomenon that has become a significant global issue. World food prices are back at levels last seen in 2008, a year that was described as a food crisis when riots spurred bans on food exports in many countries.
"If you break down the inflation numbers then the impact of food has been extremely significant," Will Shropshire, head of investor trading, product development and agriculturals for JP Morgan said in an interview with Reuters.
Shropshire said prices for agricultural commodities had risen to a level that "reflects the tightness of the balance sheets (of the commodities)." He added prices could rise further if markets are hit by any more supply concerns.
"If we have any more shocks to supply the impact could get increasingly dramatic," he said.
Shropshire is correct about the supply problem, but he neglects to point out the demand side contribution via the Federal Reserve printing money. What we have here is a perfect storm situation for much higher prices.
Thanks to the Fed, life is about to get a whole lot more expensive. Higher food prices will slow the economy down further, be especially hard on the poor and those on fixed incomes, and further increase flight from the dollar.
Then, on top of the skyrocketing food and energy costs, we still have a public pension crisis, and insolvent local, state, and federal governments to contend with too. Oh, and insolvent banks, and ... you get the picture.
We've whipped up a recipe for disaster. We're heading for a world of hurt.