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Low-Price Food Tremor

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Touch the Soil News #465

Wheat farmers in America rise and fall on the USDA’s reports of production. If the USDA reports production is up, speculators say there is an oversupply and farm prices often collapse. The USDA’s August 2016 World Supply Report reveals that the world will produce 743 million metric tonnes of wheat this season. This is 4 percent more than what was produced in the 2013 season. Since 2013, wheat prices and profitability of wheat farming have plummeted.

The seal of the USDA. Unfortunately, the production estimates of the USDA often are the basis for speculation that can artificially drive prices down (hurting farmers) or drive prices up (causing starvation).

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Punishing Farmers

As punishment to farmers for producing 4 percent more wheat, the price of wheat has collapsed. The USDA projects that for the 2016 farming season, farmers will receive an average of $4.00 or less for a bushel of wheat that the USDA says costs $6.00 to produce.

On the other side of the world in Rome, Italy is the FAO – the Food and Agriculture Organization of the United Nations. The FAO sits on the pulse of the world’s hungry people. The FAO tabulates what it calls the food price index. The index assesses the cost of food for five basic food staples – meat, dairy, grains, vegetable oils and sugar. Since the poorest of folks are most devastated by increases in the cost of basic foodstuffs, the financial punishment of farmers for producing too much is temporarily in their favor.

The FAO has determined that the most expensive year for these basic commodities – over the past 16 years – was 2011. Since then the costs of these basic foods have declined by 30 percent. For people eating higher on the food chain – where costs can double or triple due to processing, packaging and retailing – we simply cannot see a 30 percent drop in food costs.

However, for folks eating the most basic grains and fixing everything from scratch, eating food that resembles closely to what comes off the farm is how they survive.

 

A False Hope

Also hiding within the numbers that the FAO crunches is a more sobering tale. The FAO predicts that cereal grain production (wheat, rice, corn, barley, oats, etc.) for the 2016 season will be slightly eclipsed by consumption. As a result, the ending stocks of these cereal grains (what is in bins before a new agricultural season starts) have been on a decline since the 2014 crop season.

The punishing economic landscape that grain farmers have experienced for the past three seasons sends one powerful message – CUT BACK. Global consumption of grains has increased by 25 percent over the past 10 years – and there are still 850 million starving people.

The hope by the FAO that prices will stay low for the basic commodities is a false hope. History is full of low price food tremors that bankrupt farmers and high price food tremors that push hundreds of millions of people from the dinner table.

 

A Controversial Solution

One global trend is clear – The impact of free and speculative forces on agriculture always results in farmers in trouble and folks in hunger. Is it possible there needs to be some intelligent guidance in terms of strategic stocks, price safety nets and more jobs so people can afford to eat? Today’s low-price food tremor is the precursor to a high-price food tremor and another round of country failures.

Following is a 2012 video clip that tracks the global spike in food prices while showing flags of nations experiencing riots and political turmoil during the price spikes.

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