Futures Markets Gambling To Give U.S.A.
New Rounds of Food Shocks
Jan. 18, 2011 (EIRNS)New rounds of food price shocks, and even shortages, are set for the United States, as financial bail-out liquidity swamps commodity exchanges, and Obama continues in office, talking Bernanke-nonsense about "subdued inflation." On the most obvious level, people are already paying 12+ percent more for their food bill than a year ago. But drastic increases are set for the coming weeks.
The meat supply chain makes the point. Supermarket prices for steak are up 7 percent over last year, and pork, 7-10 percent; but cattle futures prices are up 25 percent, and hogs 30 percent from a year ago on the Chicago Mercantile Exchange. Look for new price spikes in your grocery meat case soon.
The ever-ballooning volume of agro-futures and options trading bears no relation to the far-smaller volume of physical product.
Processors and wholesalers of all kinds of foods, have done a jig, to damp retail prices, by diminishing package sizes, adding water and filler, limiting price increases, absorbing some loss; but that chapter is now history. From ConAgra to Kelloggs, they are all announcing price hikes for the consumer.
Moreover, farmers are not raking in super-profits; they are slammed by the high prices hitting their own operations, for chemicals, seeds, gas, fertilizer, and other inputs. At the same time, they often get prices for their output "at the gate," far lower than the paper-futures prices run up on the exchanges. Mostly farmers are whipsawed by the extreme unpredictability of prices, when their livestock and crops require regular care, day in and day out.
Look at Iowa, a leading U.S. farm state. The cash paper value of Iowa's corn and soybean crops a year ago, was $13 billion; but it is now over $21 billion. (Corn was $3.50 a bushel, and now is $6.57 on the Chicago Board of Trade (CBOT); soybeans were $9 a bushel, and now are at $14.09). Is this "good news"? Consider it, from the vantage point of feeding livestock.
Iowa is a leading hog and cattle producing state. Corn is the most important ingredient in livestock rations. Feeding costs are soaring. Adding to this, Iowa is the lead state for corn-for-ethanol, under Obama's alternative fuels madness. Is it reassuring for the Iowa farmer that corn, soy, beef and hog prices are all rising?
Fertilizer prices to the farmer, are up 14 percent over the past year, overall, for the three basicsnitrogen, potassium, and phosphorous, but wholesale prices have risen even more rapidly. The price for ureafor nitrogenous fertilizerrose more than 100 percent in the second half of 2010. Corn is a heavy fertilizer crop.
Stock prices of the fertilizer cartel companies are soaring. Potash Corp. shares rose 20 percent since mid-December. Yara International, the world's largest publicly-traded nitrogen fertilizer maker, is likewise seeing a lift-off. Mosaic, the fertilizer wing of private mega-company Cargill, is making a killing. Grain-handling cartels are also raking it in, including ADM, Bunge, Viterra, Louis Dreyfus, et al.
'To Hell with It'
What's happening is that farmers are quitting; cow herds are shrinking in numbers in the farmbelt. Young farmers are quitting before they even start. There's a "to hell with it all" mood. A downshift is underway. The average age of farmers is near 60 in the Nebraska panhandle and elsewhere. New farmers can't start up today, when it takes 450 cows to support a family of four, and start-up for that kind of operation takes $5-7 million. Without a Glass-Steagall break with the expiring monetary system, food will disappear.