# What will bring food prices down, if anything?



## EamoS (18 Jan 2011)

Obviously, the main answer is good weather and a bumper crop.

But with food prices at record highs, and more recent weather events which should significantly affect harvest (e.g. Brazil and Australia), what's going to stop food prices from continuing to rise. Furthermore, from what I understand, certain crops are in effect, in competition, with each other for agricultural land space. So crops will be affected indirectly if farmers substitute land space in order to try and compensate for poor harvests in other crops.

Also, is it fair to say that inflation may also drive up prices? Are agri commodities another asset class that people would invest in to avoid their cash holdings losing value through inflation or reduced confidence in their currency. Or do investors tend to avoid such commodities like this that are driven almost solely by supply and demand which in turn are driven by factors hard to predict such as weather? My theory is that investors may favour agri commodities over precious metals such as Gold, which could be due for a correction and no longer a safe haven.

Any help with this would be greatly appreciated!


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## sustanon (18 Jan 2011)

On a recent trip to Hungary my Hungarian colleague remarked on the change over of food production there to corn in response to the demand for ethanol, He also mentioned that Hungarians are importing Onions from China, Hungary always grew their own onions. I think the fuel issue is an important part of this equation. In the US corn is booming but not for food. My local gas station provides gasoline with up to 15% ethanol as standard.


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## Chris (19 Jan 2011)

Weather conditions in certain parts of the world are only part of the problem of increased soft commodities. Every single year there are "unforseen" or "unprecedented" adverse weather conditions somewhere in the world, but such large spikes across the board do not happen. The price increases seen across the board with soft, hard and energy commodities is the result of inflationary monetary policies by central banks around the world. Note, increasing prices are the result of increased money supply, prices cannot increase in general without an increased money supply.
Also, prices in soft commodities are not rising because investors and speculators are flocking in. They are rising because of (a) increased demand from China and India and (b) increased demand in nominal money terms from industrial countries who have pumped up the printing presses.
Bottom line, what you are seeing in stocks, bonds, commodities, etc. is the result of monetary inflation, and it is only going to get worse.


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## farmerette (19 Jan 2011)

while droughts in russia , europe last summer and floods in australia recently have an effect , food is the new gold for speculators who determine the cost of almost everything theese days


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## Chris (21 Jan 2011)

farmerette said:


> while droughts in russia , europe last summer and floods in australia recently have an effect , food is the new gold for speculators who determine the cost of almost everything theese days



Speculators do not ultimate determine the price of commodities. Supply and demand influence the spot price of every market, and unless a futures contract, upon maturity, matches the demand on the spot market, the speculator loses money. 
Also, speculators buy low and sell high, or sell high and buy low, which results in price movements being smoothed out, not exacerbated. The blaming of speculators is the oldest scape goat used by politicians, which doesn't stand up to any scrutiny.
If it wasn't for speculators price volatility would be much higher, not lower.

Here is an article by economist Robert Murphy; it is quite technical but worth the read:
http://www.instituteforenergyresearch.org/2008/06/23/speculators-not-to-blame-for-high-oil-prices/


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## chook (21 Jan 2011)

I can't post links yet but google "Johann Hari: How Goldman gambled on starvation" and you'll get some more answers re speculation on the futures markets and why prices shot up in 2006.


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## farmerette (21 Jan 2011)

Chris said:


> Speculators do not ultimate determine the price of commodities. Supply and demand influence the spot price of every market, and unless a futures contract, upon maturity, matches the demand on the spot market, the speculator loses money.
> Also, speculators buy low and sell high, or sell high and buy low, which results in price movements being smoothed out, not exacerbated. The blaming of speculators is the oldest scape goat used by politicians, which doesn't stand up to any scrutiny.
> If it wasn't for speculators price volatility would be much higher, not lower.
> 
> ...


 

surely one of the reasons gold has been dropping like a stone this past month is due to speculators dumping gold and returning to equities , speculators get bored with a particular assett and move on to another one


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## horusd (21 Jan 2011)

Heard a guy on Pat Kenny today talking about food prices.  Didn't catch his name, but he said that food consumption would increase by 60 % over the next ? few yrs.  Presumably this has a lot to do with population growth and growing industrialisation in China and the like.


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## horusd (21 Jan 2011)

Strikes me that most value is added to agri products at processing stage.  I have invested in companies that do this.  They have performed well in the current crisis, and include a dividend.


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## farmerette (21 Jan 2011)

horusd said:


> Strikes me that most value is added to agri products at processing stage. I have invested in companies that do this. They have performed well in the current crisis, and include a dividend.


 

the retailers get the biggest slice of the pie with the primary producer getting the short straw


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## horusd (21 Jan 2011)

farmerette said:


> the retailers get the biggest slice of the pie with the primary producer getting the short straw


 
Fair point.Retailers are good stocks to hold. But stocks in large retailers in recent yrs has risen considerably. Better value now in my view in the processing end.


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## farmerette (21 Jan 2011)

horusd said:


> Fair point.Retailers are good stocks to hold. But stocks in large retailers in recent yrs has risen considerably. Better value now in my view in the processing end.


 
sorry , i realise you were speaking within the context of which was a better buy right now , retail or processing , agree fully

glanbia has been doing exceptionally well this past few months and kerry isnt far behind


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## Chris (24 Jan 2011)

farmerette said:


> surely one of the reasons gold has been dropping like a stone this past month is due to speculators dumping gold and returning to equities , speculators get bored with a particular assett and move on to another one


That is a valid assumption, but just as valid is the assumption that rather than a decrease in demand, there was an increase in supply through a central bank selling or a mining company increasing hedging positions. Either and many more assumptions could be true, which means it is never as black and white as you state.
It'll probably be 6 months or so before we see accurate figures on gold sales.



horusd said:


> Heard a guy on Pat Kenny today talking about food prices.  Didn't catch his name, but he said that food consumption would increase by 60 % over the next ? few yrs.  Presumably this has a lot to do with population growth and growing industrialisation in China and the like.


Population growth is one aspect, but I believe that the biggest driving force will be increased wealth in China and India. The first thing people spend more on when they become wealthier is better diets


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