Bunch of Food Related Stories in FT.com as DBA Hits $42

I just mentioned last week Powershares DB Agriculture Fund breaking $40 for the first time [Powershares DB Agriculture Fund (DBA) Hits $40 for First Time - Soybeans Now a Shortage]; it is already $42; this is not just a financial instrument - its increase reflects a serious crisis brewing that we've been predicting for a long time but now appears to be gaining urgency by the day.

The Financial Times is all over the coming food crisis issue today... let's hope this stock market continues to rally so the upper 20% can continue to eat ;) the lower 80%? Let them eat cake! No wait... they cannot afford to eat cake. Well.... Let them imagine they can eat cake!

I mentioned Kazakhstan earlier today in another post; don't let any Borat references make you snicker. These Eastern European/former USSR satellite countries are very similar to the US heartland. These 2 areas provide much of the world's grain exports. So when these type of countries pull back it's dangerous. By dangerous, I am not being a sensationalist - many of the world's poor, lower, and now middle class (remember what is middle class there might be considered lower poor here) are going to be in a very serious situation as prices continue to rise.

#1 Wheat Prices Hit All Time Highs

• Prices of top-quality wheat jumped 20 per cent on Monday, the largest one-day increase ever, to a record high as Kazakhstan, one of the world’s largest exporters of the grain, said it would impose export tariffs to curb sales.
  
• The move, which follows similar export restrictions in Russia and Argentina, is likely to put further pressure on already tight global wheat supplies, analysts said. Akhmetzhan Yesimov, Kazakhstan’s minister of agriculture, said the government wanted to limit exports as it battled against rising domestic inflation of nearly 20 per cent.
• “Whatever happens, we will soon limit exports,” Mr Yesimov said. Kazakh grain, prized for its high protein and gluten content, is similar to some of the scarce top-quality North American crops that jumped in price on Monday.
• The price of spring wheat, used to bake bread, has more than doubled since January and has risen fourfold in the last year, contributing to a rise in global food inflation.
• Gavin Maguire, of Iowa Grain in Chicago, said consumers such as mills and bakers, who needed wheat, were “panicking”. “Historical references are useless. We are breaking all the rules,” he said.
• Iraq and Turkey said they were planning substantial wheat purchases to replenish inventories and analysts said China could be forced to follow because of drought damage to its next crop.

#2 High Food Prices Might Force Aid Rationing

• The United Nation’s agency responsible for relieving hunger is drawing up plans to ration food aid in response to the spiralling cost of agricultural commodities. The World Food Programme is holding crisis talks to decide what aid to halt if new donations do not arrive in the short term.
• Josette Sheeran, WFP executive director, told the Financial Times that the agency would look at “cutting the food rations or even the number or people reached” if donors did not provide more money.
• “Our ability to reach people is going down just as the needs go up,” she said.
• WFP officials hope the cuts can be avoided, but warned that the agency’s budget requirements were rising by several million dollars a week because of climbing food prices.
• The WFP crisis talks come as the body sees the emergence of a “new area of hunger” in developing countries where even middle-class, urban people are being “priced out of the food market” because of rising food prices.
• The warning suggests that the price jump in agricultural commodities – such as wheat, corn, rice and soyabeans – is having a wider impact than thought, hitting countries that have previously largely escaped hunger.
• Hunger is now “affecting a wide range of countries”, she said, pointing to Indonesia, Yemen and Mexico. “Situations that were previously not urgent – they are now.”
• The main focus of the WFP to date has been to provide aid in areas where food was unavailable. But the programme now faces having to help countries where the price of food, rather than shortages, is the problem.
• Ms Sheeran said that in response to rising food costs, families in developing countries were moving in some cases from three meals a day to just one, or dropping a diverse diet to rely on one staple food.
• In response to increasing food prices, Egypt has widened its food rationing system for the first time in two decades while Pakistan has reintroduced a ration card system that was abandoned in the mid-1980s.
• The US Department of Agriculture warned this week that high agricultural commodities prices would continue for at least the next two to three years.

#3 Shoppers Warned Bigger Bills on the Way

• When William Lapp, of US-based consultancy Advanced Economic Solutions, took the podium at the annual US Department of Agriculture conference, the sentiment was already bullish for agricultural commodities boosted by demand from the biofuels industry and emerging countries.
• His warning that a strong wave of food inflation is heading towards the world economy was met by nods from agriculture traders, food industry executives and western’s government officials at the USDA’s annual Agricultural Outlook Forum.
• Larry Pope, chief executive of Smithfield Foods, the largest US pork processor, warned delegates of a wave of “real food inflation” just at the time central banks were under pressure to cut interest rates. “I think we need to tell the American consumer that [prices] are going up,” he said. “We’re seeing cost increases that we’ve never seen in our business.”
• The comments highlighted one of the conference’s main concerns – that rising agricultural prices have reached a stage at which the impact will be felt not only on fresh food but will also filter through the supply chain and raise the cost of processed food.
• Tom Knutzen, chief executive of Danisco, one of the world’s largest ingredients companies, said rising vegetable oil costs made it more expensive to produce preservatives, colourings and flavourings.
• He said that wheat prices had previously moved from $3 to $5 a bushel without significant pain for consumers. “But now the wheat price has jumped to nearly $20 a bushel. These large increases will show up [in consumer prices].”
• Some people hope a slowdown in the US or global economy would push down agricultural commodities prices. But Mr Glauber said that would have a limited impact on agriculture commodities prices. “I am more concerned about higher prices than lower prices.”

#4 Demand for Wheat Puts India at Risk

• India is at risk of sustained food price inflation as domestic production of key staples such as wheat and edible oil fails to keep pace with rising demand, according to the country’s top official on commodities trading.
• B.C. Khatua, the chairman of the Forward Markets Commission, which regulates futures trading for food commodities ranging from wheat and rice to dried beans, said India urgently needed to improve agricultural productivity to stem food price rises, which hit the nation’s poor majority the hardest. “India has a deficit of oilseed, a deficit of many pulses and now a deficit of wheat – all the major staples are now getting hit by the demand-supply gap,” said Mr Khatua.
• Food inflation is one of the most politically sensitive areas of the Indian economy, with the World Bank estimating 29 per cent of India’s 1.1bn people live below the national poverty line.
• Mr Khatua said India needed to address infrastructure problems such as the lack of rural roads and warehouses, cold storage and processing facilities to lift productivity and help reduce wastage, which he estimated at 15-20 per cent of agricultural output.

Whew. As happy as I am intellectually to have nailed this long ago before it was front page news; it is quite heart breaking to see it play out due to the impact of so many people. Fuel inflation hurts only so many - keep in mind much of this world is still rural and poor. Many could care very little about how much petrol goes up. But food affects everyone.

Long Powershares DB Agriculture Fund in fund and personal account