For instance, I could not have predicted falling corn prices in the face of continued drought in the US corn-belt, bottle-necking of grain exports out of Russia and Ukraine, the flooding in China and the reduced rice exports out of India.
To some extent, the type of grain does not matter. Starch is starch. If you are making animal feed or fermenting ethanol or at the bottom of the economic ladder and are looking to fill your belly, your biggest concerns are price and freedom from toxins produced by fungi.
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| Yellow line marks start of Ukraine war |
Insensitivity of food prices to the price of grain
People in First World countries are insulated from huge jumps in the price of food when the price of grain goes up because the price of raw materials is a small part of the producer's cost to make, advertise and deliver the product.
It is often said that the cost of the bread wrapper costs the producer more than the cost of the wheat that was ground to make the flour in a loaf of bread.
About pound of grain is needed to produce a 12 pack of beer or roughly ten cents at the farmer-level. A cheap 12 pack of beer, locally, retails for $10 while premium beer sells at the $15-to-$17 price-point. The cost of the grain is almost nothing in the cost of making adult beverages.
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| Food inflation in Egypt, five year data. 65% inflation in 2023 on top of 20% inflation in 2022. The price of food almost doubled in two years. The average wages in Egypt are $300 a month. |
That is not the case in non-First-World countries. The price of food is very sensitive to the price of grain because very few "value added" steps are in the delivery system. Grain===>Grinding or de-hulling===>Cooking===>Table.
For people living on the edge, there is no room for "Hedonism adjustments" where people eat chicken-instead-of-beef or eggs-instead-of-chicken or beans-instead-of-eggs. When most of your calories come from rice or corn tortillas or bread, there is no wiggle room. Day laborers have nothing to lose by rioting. Governments topple.
Traveling to not-First-World countries for recreational reasons is not advisable when the people at the bottom of the economic pyramid are rioting.
Very good points, especially about lower income countries.
ReplyDeleteI have read that some ethanol production is coming from corn stalks now instead of ears; that could lower corn ear prices if done on a wide scale.
Or there could be less demand elsewhere, for instance in animal feed or in exports.
I don't trade cattle futures against HiIIary Clynton for many good reasons.
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I used to trade ag commodities lightly for about 50 years or so and making some good trades is what kept me in the game. But looking back over it I don't think that I broke even. The religious Catholic blogger, Ann Barnhardt used to be an ag broker and she was good at it. ---ken
ReplyDeletelooking back over it I doubt if I broke even.